<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- --------
COMMISSION FILE NUMBER: 0-20900
COMPUWARE CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2007430
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31440 NORTHWESTERN HIGHWAY, FARMINGTON HILLS, MI 48334-2564
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (248) 737-7300
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
There were 86,333,497 shares of $.01 par value common stock outstanding as of
June 3, 1997. The aggregate market value of the voting stock held by
non-affiliates of the registrant, based upon the closing sales price of the
common stock on June 3, 1997 as reported on the Nasdaq Stock Market, was
approximately $3,499,100,446.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1997 Annual Meeting of
Shareholders are incorporated by reference in Part III.
The Exhibit Index is located on pages 41 and 42.
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COMPUWARE CORPORATION AND SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
<TABLE>
Item
Number Page
- ------ ----
PART I
<S> <C> <C>
1. Business 3
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
5. Market for the Registrant's Common Equity and Related Stockholder
Matters 11
6. Selected Consolidated Financial Data 12
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
8. Consolidated Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 37
PART III
10. Directors and Executive Officers of the Registrant 38
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial Owners and Management 39
13. Certain Relationships and Related Transactions 39
PART IV
14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 40
</TABLE>
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PART I
ITEM 1. BUSINESS
Compuware provides software products and professional services designed to
increase the productivity of the information systems departments of its target
market, the 15,000 largest enterprises worldwide. The Company has historically
focused on the testing & implementation environment in the mainframe market,
where it has extensive experience and has established long-term customer
relationships. The Company also operates in the client/server market, with
products and professional services in the application development, testing &
implementation and systems management environments.
The Company was incorporated in Michigan in 1973. The Company's executive
offices are located at 31440 Northwestern Highway, Farmington Hills, Michigan
48334-2564, and its telephone number is (248) 737-7300.
THE COMPANY'S STRATEGY
The focus of the Company is to provide products and professional services to
improve the productivity of both mainframe and client server programmers and
analysts in its target market, the 15,000 largest enterprises worldwide
deploying data processing technology. These companies invest substantial
resources to build and maintain large, complex mission-critical applications.
As a result, this target market can benefit most from the Company's product and
professional services offerings.
The Company has developed software products and professional services for the
client/server and mainframe markets. The Company believes that each market
includes three environments: 1) the application development environment in
which application software is initially constructed; 2) the testing &
implementation environment in which application software is executed, debugged,
tested and maintained in a series of repetitive, ongoing cycles for the life of
the application; and 3) the systems management environment in which operating
systems, databases and telecommunications networks are managed.
The Company has chosen not to compete in the application development and
systems management environments of the mainframe market because these are
mature markets served by several other large companies.
PRODUCTS DIVISION
MAINFRAME MARKET
The Company believes that the market for mainframe products is well-defined,
mature and is influenced by large, well-established companies. The prevalence
of IBM and IBM-compatible mainframes over the past thirty years has resulted in
a set of well-established standards in today's mainframe market.
Compuware intends to remain focused on developing, marketing and supporting
high-quality testing & implementation programmer productivity software and to
work closely with its customers to meet their evolving needs.
CLIENT/SERVER MARKET
In contrast to the mainframe market, the client/server market is fragmented and
characterized by multiple hardware, software and network configurations, as
well as evolving standards and practices. As a result, it is a burdensome task
for large organizations to develop, deploy and maintain software
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applications that address the wide-ranging needs of individual users,
departments and the enterprise as a whole. The Company believes its
client/server products address these challenges and that it is well positioned
to successfully market client/server application development, systems management
and testing & implementation software to its target market.
In the last two years, the Company has developed products and made acquisitions
in the application development, testing & implementation and systems management
environments of the client/server market. The Company believes it has made
substantial progress in penetrating the market in the application development
and systems management environments because of the quality and visibility of
its UNIFACE and EcoSystems products.
MAINFRAME TESTING & IMPLEMENTATION TOOLS
The Company currently offers testing & implementation software products that
focus on improving the productivity of programmers and analysts in application
testing, test data preparation, error analysis and maintenance of systems
running on IBM and IBM-compatible mainframes.
The Company's testing & implementation products are functionally rich, focused
on user needs and require minimal user training. Compuware strives to ensure a
common "look and feel" across its products and emphasizes ease of use in all
aspects of product design and functionality. Most products can be used
immediately without modification of customer development practices and
standards, can be quickly integrated into day-to-day testing, debugging, and
maintenance activities and provide demonstrable benefits soon after
installation.
Compuware's mainframe testing & implementation products are grouped into the
following four product families:
File and Data Management. Compuware's file and data management products include
the File-AID and XPERT series products. These products provide a consistent,
familiar and secure method for IS professionals to access data across all
strategic environments in order to automate the creation of test data, quickly
resolve production data problems and manage changes to data and databases.
Fault Diagnosis. Compuware's Abend-AID products assist programmers in more
quickly and accurately analyzing and diagnosing software errors generally
occurring during testing & implementation. These errors, which result in the
abnormal end of the application execution, must be corrected before the program
at fault is restarted.
Interactive Analysis and Debugging. Compuware's XPEDITER interactive debugging
products enable programmers to identify and resolve errors in complex software
efficiently and accurately. Compuware's PATHVU interactive analysis products
enable programmers to assess the quality of program code, document program
logic and trace the flow of the program's logical execution.
Automated Testing. Compuware's PLAYBACK automated testing products simulate the
on-line systems environment, allowing programmers to test on-line applications
under production conditions without requiring actual users at terminals. These
products capture actual production transactions, allow test data to be created
by modification of these transactions, and then execute application programs
using these test data in a simulated on-line environment.
CLIENT/SERVER TESTING & IMPLEMENTATION TOOLS
The Company's client/server testing & implementation toolset is rapidly
evolving to improve the productivity of programmers and analysts who work in
the various client/server computing platforms. Similar to their mainframe
counterparts, these products can be used immediately without modification of
customer development practices and standards, can be quickly integrated into
day-to-day testing, debugging and maintenance activities and provide
demonstrable benefits soon after installation.
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Compuware's client/server testing & implementation products are grouped into
the following four product lines:
File and Data Management. The Company has extended its File-AID and XPERT
series of products in order to provide file and data management solutions for
client/server environments.
Fault Diagnosis. Compuware's Fault-XPERT product assists programmers in
analyzing and diagnosing errors that occur in programs running in client/server
environments. These errors, which result in abnormal end of application
execution, must be corrected before the program at fault is restarted.
Interactive Analysis and Debugging. Compuware's most recent client/server
testing & implementation tool is XPEDITER/SQL, which provides interactive
analysis and resolution of SQL program errors.
Automated Testing. In May 1996, the Company acquired Direct Technology
Limited, a privately held supplier of automated testing products and services
located in the United Kingdom. During fiscal 1997, the Company also acquired
DRD Promark Inc., another supplier of automated testing tools. Compuware's new
line of QA/Center products addresses the growing demand for automated testing
solutions for client/server environments.
CLIENT/SERVER SYSTEMS MANAGEMENT TOOLS
To maximize system availability and productivity in third party software
environments such as UNIX, Windows NT, ORACLE, Informix and Sybase,
Compuware's EcoSystems products help diagnose and correct problems as they
occur, optimize system performance and manage various hardware and software
configurations. The Company's client/server systems management products provide
access to and control over entire systems of computers, networks and
applications, including distributed databases and other client/server
applications. These products provide powerful systems management and database
management functions that have historically only been available on mainframe
computers. These environments are often very complex systems comprised of
heterogeneous networks, hardware and software.
CLIENT/SERVER APPLICATION DEVELOPMENT TOOLS
The Company's client/server application development toolset, UNIFACE, is
designed to assist software developers in the creation, deployment and
maintenance of complex client/server applications. UNIFACE enables software
developers to create applications that are not tied to any specific hardware
platform, operating system, database management system, or graphical user
interface. Application objects are captured in a central repository, which
permits their re-use in the development of technology independent applications
and allows for easier management and maintenance of applications. In addition,
UNIFACE insulates applications development and deployment from the individual
technical components which comprise a computing environment. This reduces
development and maintenance costs, permits applications to be developed once
using existing technology, and then permits the application to be deployed into
different computing technology without significant redevelopment.
UNIFACE runs on Microsoft Windows, Windows 95, Windows/NT, DOS, VMS, MPE/IX,
OS/2, Macintosh System 7 and a variety of UNIX platforms. In addition,
applications built with UNIFACE have access to relational and non-relational
data sources, including Oracle, Sybase, Informix, Ingres, DB2/6000 and RdB.
PROFESSIONAL SERVICES DIVISION
The Company believes that the demand for professional services is driven by the
need to control costs, the greater level of resources necessary to support
complex and rapidly changing hardware,
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software and communication technologies, the need for a larger technical staff
for ongoing maintenance, and more recently, the increased growth of the
client/server market.
The rapid growth of the client/server market has created strong demand for
professional services and consulting to assist customers in building new
client/server environments. Generally, these customers do not have a sufficient
staff of programmers with the expertise to implement client/server systems and
applications. The Company believes it has a competitive advantage in the
client/server market by providing products as well as professional services.
For an organization implementing a client/server system, Compuware offers
software tools and professional services to deliver complete client/server
solutions. Compuware has trained a significant segment of its professional
services staff in UNIFACE, EcoTools and other major client server technologies
so that it can assign such personnel to fulfill client/server-oriented
consulting and implementation requirements.
The need to modify applications systems for the Year 2000 has created strong,
temporary demand for professional services and consulting to assist customers
in sizing, analyzing, converting and testing their applications programs for
Year 2000 compliance. The Company believes it has a competitive advantage by
combining its products and services offerings in order to provide clients with
comprehensive, efficient Year 2000 solutions. Its PRODUCTION 2000 and
JumpStart/2000 offerings demonstrate the Company's unique capability to respond
to its customers' evolving, and sometimes transient, needs. The Company
believes that its long term success, however, will depend upon its ability to
respond effectively to changes in customer needs beyond the Year 2000.
In April 1996, the Company acquired all of the outstanding stock of Technalysis
Corporation ("Technalysis"), a professional services company headquartered in
Minneapolis. Technalysis specializes in the design, development and
implementation of data processing applications, products and information
systems on mainframe, mid-range and micro computers. Also during fiscal 1997,
the Company acquired Adams & Reynolds, Inc., MC Squared Incorporated and
Virtual Innovation, Inc. and in April 1997, the Company acquired Vine Systems
Co. Limited, all of which are professional services organizations specializing
in implementing a full range of client/server technology.
Compuware offers a broad range of professional services, including business
systems analysis, design and programming, software conversion, systems planning
and systems consulting. Compuware's business approach to professional services
delivery emphasizes the hiring of experienced staff, extensive ongoing
training, high staff utilization and immediate, productive deployment of new
personnel at client accounts.
The objective of the Company's professional services is to create long-term
relationships with clients in which its professional staff join with the
client's information systems organization to plan, design, program, implement
and maintain technology-based solutions that achieve client business goals.
Typically, the professional services staff is integrated with the client's
development team on a specific application or project. Professional services
staff work primarily at client sites or at Compuware's Development Centers in
Farmington Hills, Michigan; Milwaukee, Wisconsin; Columbus, Ohio; Phoenix,
Arizona and Bethesda, Maryland.
CUSTOMERS
Compuware's products and professional services are used by the information
systems departments of a wide variety of large commercial and government
organizations. As of March 31, 1997, approximately 200,000 copies of
Compuware's products had been licensed by over 11,800 customers.
None of Compuware's customers accounted for 10% or more of Compuware's total
revenues during any of the last three fiscal years. In fiscal 1997, fiscal
1996 and fiscal 1995, revenues from professional services provided to Ford
Motor Company, the largest user of the Company's
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professional services, represented 9.4%, 9.0% and 11.4%, respectively, of
professional services revenues (3.3%, 3.0% and 3.3%, respectively, of total
revenues.)
SALES AND MARKETING
Compuware markets its testing & implementation tools, client/server systems
management tools and client/server application development tools primarily
through a direct sales force in the United States, Canada, Europe, Japan,
Asia/Pacific, Brazil, and South Africa as well as through independent
distributors in over 30 other countries. Compuware's combined products sales
and marketing staff as of March 31, 1997 numbered 613 in the United States
(including headquarters support for international sales), 25 in Canada, 525 in
Europe, 15 in Japan, 75 in Asia /Pacific, 21 in Brazil and 19 in South Africa,
for a total of 1,293 worldwide.
Compuware markets its professional services primarily through account managers
located in offices throughout North America, Europe and Asia/Pacific. Senior
professional services executives support branch marketing efforts by
identifying new business opportunities and making joint sales calls. This
marketing structure enables the Company to keep abreast of, and respond quickly
to, the changing needs of its clients and to call on the actual users of
Compuware's professional services on a regular basis. UNIFACE professional
services are generally provided in conjunction with product sales.
PRODUCT DEVELOPMENT AND MANUFACTURING
Compuware has been successful in developing acquired products and technologies
into marketable software for its distribution channels. Compuware believes that
its future growth lies in part in continuing to identify promising technologies
from all potential sources, including independent software developers,
customers, small startup companies and internal research and development.
Compuware's product development staff consisted of 462 employees as of March
31, 1997. Product development is performed primarily at Compuware's
headquarters in Farmington Hills, Michigan, and at its offices in Campbell,
California and in Amsterdam, The Netherlands.
Total research and development costs incurred internally by Compuware were
$54.3 million, $55.7 million and $45.7 million during fiscal 1997, 1996 and
1995, respectively. Of these amounts, $9.8 million, $12.9 million and $13.9
million were capitalized during the same periods, respectively. Capitalization
of internally developed software products begins when technological feasibility
of the product is established. Software product development expense in the
statement of operations includes all expenditures for research and development
net of amounts capitalized.
Compuware's software products are distributed as object code on standard
magnetic cartridges and diskettes, together with printed documentation.
Compuware purchases cartridges, diskettes and documentation printing from
outside vendors. The product duplication, packing and distribution to
Compuware's customers is performed at the Company's corporate headquarters in
Farmington Hills, Michigan.
PRODUCT MAINTENANCE AND CUSTOMER SUPPORT
Compuware believes that effective support of its customers and products during
both the trial period and for the license term is a substantial factor in
product acceptance and subsequent new product sales. Compuware believes its
installed base is a significant asset and intends to continue to provide high
levels of customer support and periodic product upgrades to assure a continuing
high level of customer satisfaction. In fiscal year 1997, approximately 97% of
Compuware's existing customers renewed at least one of their maintenance
arrangements. Compuware had 256 employees as of March 31, 1997 devoted to its
maintenance and customer support services.
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All customers who subscribe to Compuware's maintenance and support services are
entitled to receive technical support and advice, including problem resolution
services and assistance in product installation, error corrections and any
product enhancements released by Compuware during the maintenance period.
Maintenance and support services are provided primarily by telephone access to
technical personnel located in Farmington Hills, Michigan; Campbell,
California; and in the offices of Compuware's foreign subsidiaries and
distributors.
Licensees have the option of renewing their maintenance agreements each year
for an annual fee of approximately 15% of the then current list price of the
licensed product. They also have the option of purchasing maintenance for up to
five years on a prepaid basis. For fiscal years 1997, 1996 and 1995,
maintenance fees represented approximately 25.8%, 30.0% and 28.8%,
respectively, of Compuware's total revenues.
COMPETITION
The markets for Compuware's software products are highly competitive and
characterized by continual change and improvement in technology. Compuware's
competitors include BMC Software, Computer Associates, Centura, Forte,
Informix, Oracle, PLATINUM Technology, Sybase and VIASOFT. None of the
competitors competes in all of Compuware's product lines. Although Compuware
believes its products are generally complementary to those marketed by IBM, IBM
does offer some products that are directly competitive and there can be no
assurance that IBM will not choose to offer significant competing products in
the future. The principal competitive factors affecting the market for the
Company's software products include: responsiveness to customer needs,
functionality, performance, reliability, ease of use, quality of customer
support, vendor reputation and price. The Company believes, based on its
current market position, that it has competed effectively in the software
products marketplace. Nevertheless, a variety of external and internal events
and circumstances could adversely affect the Company's competitive capacity.
The Company's ability to remain competitive will depend, to a great extent,
upon its performance in product development and customer support. To be
successful in the future, the Company must respond promptly and effectively to
the challenges of technological change and its competitors' innovations by
continually enhancing its own product offerings.
The market for data processing professional services is highly competitive,
fragmented and characterized by low barriers to entry. Compuware's principal
competitors in professional services include Andersen Consulting, Electronic
Data Systems Corporation, IBM's Integrated Systems Solutions Corp. and numerous
small regional and local firms in the markets in which Compuware has
professional services offices. Several of these competitors have substantially
greater financial, marketing, recruiting and training resources than Compuware.
The principal competitive factors affecting the market for Compuware's
professional services include responsiveness to customer needs, breadth and
depth of technical skills offered, availability and productivity of personnel,
ability to demonstrate achievement of results and price.
PROPRIETARY RIGHTS
Compuware regards its products as proprietary trade secrets and confidential
information. Compuware relies largely upon a combination of trade secret,
copyright and trademark laws together with its license agreements with
customers and its internal security systems, confidentiality procedures and
employee agreements to maintain the trade secrecy of its products. Compuware
typically provides its products to users under nonexclusive, nontransferable
licenses. Under the general terms and conditions of Compuware's standard
product license agreement, the licensed software may be used solely for the
licensee's own internal operations on designated computers at specific sites.
Under certain circumstances, Compuware makes source code for its products
available to its customers under an escrow arrangement which restricts access
to and use of the source code. Although Compuware takes steps to protect its
trade secrets, there can be no assurance that
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misappropriation will not occur. In addition, the laws of some foreign countries
do not protect Compuware's proprietary rights to the same extent as the laws of
the United States.
Compuware seeks to protect its software, documentation and other written
materials under copyright law, which affords only limited protection. It also
asserts trademark rights in its product names. Compuware has two patent
applications pending for certain product technology and has plans to seek
additional patents in the future. However, because the industry is
characterized by rapid technological change, Compuware believes that factors
such as the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are more important to establishing and maintaining a
technology leadership position than the various legal protections of its
technology.
There can be no assurance that third parties will not assert infringement
claims against Compuware in the future with respect to current and future
products or that any such assertion may not require Compuware to enter into
royalty arrangements or result in costly litigation.
EMPLOYEES
As of March 31, 1997, Compuware employed 6,609 people worldwide, with 1,293 in
products sales, sales support and marketing; 462 in research and development;
256 in product maintenance and customer support; 3,947 in professional services
marketing and delivery; and 651 in other general and administrative functions.
None of Compuware's domestic employees is represented by a labor union.
Compuware has experienced no work stoppages and believes that its relations
with its employees are good. Compuware's success will depend in part on its
continued ability to attract and retain highly qualified personnel in a
competitive market for experienced and talented software developers,
professional services staff and sales and marketing personnel.
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ITEM 2. PROPERTIES
The Company's executive offices, principal research and development facilities,
and principal marketing, customer service and support and production facilities
are located in approximately 225,000 square feet of space that the Company owns
in an executive office park in Farmington Hills, Michigan. The Company also
leases approximately 60,000 square feet in the same office park. In May 1997,
the Company purchased a building for approximately $2.6 million that will
provide an additional 40,000 square feet of office space in the nearby West
Bloomfield community.
The Company leases products sales and support offices in twenty three locations
in the United States, Asia Pacific, Brazil, South Africa, Canada and twelve
western European countries. Remote product research and development facilities
are located in Campbell, California and Amsterdam, The Netherlands. The
Company has professional services branch offices in Baltimore and Bethesda,
Maryland; Colorado Springs and Denver, Colorado; Columbus, Cleveland and
Cincinnati, Ohio; Farmington Hills and Lansing, Michigan; Milwaukee, Appleton,
Janesville and Madison, Wisconsin; Minneapolis, Minnesota; Dallas, Texas;
Itasca, Illinois; Phoenix, Arizona and Cedar Rapids, Iowa.
ITEM 3. LEGAL PROCEEDINGS
The Company currently is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Shareholders was held on April 3, 1997 at the Company's
Headquarters, 31440 Northwestern Highway, Farmington Hills, Michigan to vote on
amending the Company's Restated Articles of Incorporation. This amendment
increased the number of authorized shares of the Company's Common Stock, $0.01
par value, from 80,000,000 shares to 200,000,000 shares, to permit a
two-for-one stock split which was previously approved by the Board of
Directors. The results of the vote, on a post-split basis, are as follows:
Number of Shares
--------------------
For 79,664,230
Against 3,012,238
Abstain 110,516
Delivered Not Voted 996,262
The total number of the Company's common shares issued and outstanding and
entitled to be voted at the Special Meeting, on a post-split basis, was
85,818,740. The total number of shares voted at the Special Meeting, on a
post-split basis, was 83,783,246 or 97.6% of the shares outstanding and
eligible to vote.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol CPWR. As of June 3, 1997, there were approximately 363 shareholders of
record of Compuware Common Stock. The Company has not paid any cash dividends
on its Common Stock since fiscal 1986, and it anticipates that for the
foreseeable future, it will continue to retain its earnings for use in its
business. On April 14, 1997, the Company effected a two-for-one stock split by
means of a 100% stock dividend payable to holders of record as of April 4,
1997. The following table sets forth the range of high and low trading sale
prices, on a post-split basis, for the Company's Common Stock for the periods
indicated, all as reported by Nasdaq.
FISCAL YEAR ENDED MARCH 31, 1997 HIGH LOW
First quarter $28.38 $11.38
Second quarter 23.00 16.13
Third quarter 31.13 22.25
Fourth quarter 34.63 24.13
FISCAL YEAR ENDED MARCH 31, 1996 HIGH LOW
First quarter $18.50 $10.94
Second quarter 15.88 10.75
Third quarter 12.00 8.75
Fourth quarter 13.63 7.75
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ----------- --------- -----------
(In thousands, except earnings per share data)
STATEMENT OF OPERATIONS DATA:
Revenues:
<S> <C> <C> <C> <C> <C>
Software license fees $318,907 $226,690 $223,589 $163,563 $117,365
Maintenance fees 209,521 184,039 153,828 116,399 90,306
Professional services fees 284,468 203,630 156,460 114,395 96,950
-------- -------- -------- -------- --------
Total revenues 812,896 614,359 533,877 394,357 304,621
-------- -------- -------- -------- --------
Operating expenses:
Cost of software license fees 20,881 20,146 14,894 10,612 11,357
Cost of maintenance 27,278 26,867 24,111 19,138 14,463
Cost of professional services 250,405 174,215 133,823 99,129 83,429
Software product development 44,494 42,792 31,825 25,596 23,385
Sales and marketing 256,139 204,403 174,829 120,338 86,434
Administrative and general 48,233 38,537 33,951 28,431 25,302
Purchased research and development 21,790(1) 24,943(2) 11,990(3) 6,480(4)
Restructuring and merger-related costs 10,688(5) 10,547(6)
-------- -------- -------- -------- --------
Total operating expenses 669,220 542,591 435,970 303,244 250,850
-------- -------- -------- -------- --------
Income from operations 143,676 71,768 97,907 91,113 53,771
Interest and investment income, net 5,710 7,015 5,805 2,797 220
-------- -------- -------- -------- --------
Income before merger costs-escrow claims 149,386 78,783 103,712 93,910 53,991
Merger costs-escrow claims 8,531(6)
-------- -------- -------- -------- --------
Income before income taxes 149,386 78,783 95,181 93,910 53,991
Income tax provision 51,950 34,541 33,084 31,623 16,504
-------- -------- -------- -------- --------
Net income 97,436 44,242 62,097 62,287 37,487
Dividends (7) 314
-------- -------- -------- -------- --------
Earnings attributable to common shareholders $ 97,436 $ 44,242 $ 62,097 $ 62,287 $ 37,173
======== ======== ======== ======== ========
Net income per common share, on a
post-split basis (8) $ 1.08 $ 0.49 $ 0.65 $ 0.67 $ 0.45
Shares used in computing net income
per common share, on a post-split basis (8) 89,935 89,737 95,369 92,812 83,330
BALANCE SHEET DATA (AT PERIOD END):
Working capital $179,508 $141,842 $195,941 $149,542 $125,337
Total assets 755,407 555,726 524,095 401,875 292,054
Long-term debt, less current maturities 6,068 - - - -
Total shareholders' equity 445,636 318,985 336,201 253,925 182,195
</TABLE>
(1) Reflects purchased research and development incurred in connection
with the Direct Technology and DRD Promark acquisitions. See Note 2 of
Notes to Consolidated Financial Statements.
(2) Reflects purchased research and development incurred in connection
with the CoroNet Systems, Inc. acquisition. See Note 2 of Notes to
Consolidated Financial Statements.
(3) Reflects purchased research and development incurred in connection
with the purchase of Simon and Oliver interactive analysis and
debugging products for CICS and batch environments from Advanced
Programming Techniques, Ltd. See Note 2 of Notes to Consolidated
Financial Statements.
(4) Reflects purchased research and development, $5.6 million of which was
incurred in connection with the purchase of Eyewitness from Landmark
Systems Corporation in January 1993.
(5) Reflects restructuring costs incurred with the reorganization of the
Company's operating units and corporate functions. See Note 3 of Notes
to Consolidated Financial Statements.
(6) Incurred in connection with the acquisition, restructuring and
integration of Uniface. See Note 3 of Notes to Consolidated Financial
Statements.
(7) No cash dividends were paid on Common Stock for any period presented.
(8) See Note 1 of Notes to the Consolidated Financial Statements and
Exhibit 11.1 for the basis of computing earnings per share. On April
14, 1997, the Company effected a two-for-one stock split by means of a
100% stock dividend payable to holders of record April 4, 1997. All
per share amounts and weighted average shares outstanding have been
restated to reflect the stock split. See Note 13 of Notes to
Consolidated Financial Statements.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain operational
data from the Company's consolidated statements of operations as a percentage
of total revenues and the percentage change in such items compared to the prior
period:
<TABLE>
Percentage of Period-
Total Revenues to-Period
----------------------- Change
Fiscal Year Ended --------------------
March 31, 1996 1995
----------------------- to to
1997 1996 1995 1997 1996
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees 39.2% 36.9% 41.9% 40.7% 1.4%
Maintenance fees 25.8 30.0 28.8 13.8 19.6
Professional services fees 35.0 33.1 29.3 39.7 30.1
------ ------ ------
Total revenues 100.0 100.0 100.0 32.3 15.1
Operating expenses:
Cost of software license fees 2.6 3.3 2.8 3.6 35.3
Cost of maintenance 3.4 4.4 4.5 1.5 11.4
Cost of professional services 30.8 28.3 25.1 43.7 30.2
Software product development 5.4 7.0 6.0 4.0 34.5
Sales and marketing 31.5 33.3 32.7 25.3 16.9
Administrative and general 5.9 6.3 6.4 25.2 13.5
Purchased research and development 2.7 4.0 2.2 (12.6) 108.0
Restructuring and merger-related costs 1.7 2.0 (100.0) 1.3
------ ------ ------
Total operating expenses 82.3 88.3 81.7 23.3 24.5
------ ------ ------
Income from operations 17.7 11.7 18.3 100.2 (26.7)
Interest and investment income, net 0.7 1.1 1.1 (18.6) 20.8
------ ------ ------
Income before merger costs-escrow claims 18.4 12.8 19.4 89.6 (24.0)
Merger costs-escrow claims 1.6 - (100.0)
------ ------ ------
Income before income taxes 18.4 12.8 17.8 89.6 (17.2)
Income tax provision 6.4 5.6 6.2 50.4 4.4
------ ------ ------
Net income 12.0% 7.2% 11.6% 120.2% (28.8)%
====== ====== ======
- ----------------
</TABLE>
13
<PAGE> 14
The following table sets forth, for the periods indicated, certain operational
data as a percentage of total revenues and the percentage change in such items
compared to prior periods after excluding fiscal 1996 and 1995 special charges
from the calculations:
<TABLE>
<CAPTION>
Percentage of Period-
Total Revenues to-Period
------------------------- Change
Fiscal Year Ended -------------------
March 31, 1996 1995
------------------------- to to
1997 1996 1995 1997 1996
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Income from operations 20.4% 17.5% 22.6% 54.1% (10.8)%
Interest and investment income, net 0.7 1.1 1.1 (18.6) 20.8
----- ----- -----
Income before income taxes 21.1 18.6 23.7 49.6 (9.4)
Income tax provision 7.1 6.2 7.8 50.9 (8.0)
----- ----- -----
Net income 14.0% 12.4% 15.9% 49.0% (10.0)%
===== ===== =====
</TABLE>
- -----------------------
FISCAL 1997 COMPARED TO FISCAL 1996
Total revenues for fiscal 1997 were $812.9 million, an increase of $198.5
million, or 32.3%, as compared to $614.4 million for fiscal 1996. The Company
experienced growth in all revenue categories during fiscal 1997.
Software license fees increased $92.2 million, or 40.7%, to $318.9 million in
fiscal 1997 from $226.7 million in fiscal 1996. Almost all of the Company's
product families experienced growth in license sales. These increases were
accomplished in all four quarters, and were due primarily to increased demand
for the Company's mainframe products, and to a lesser extent, the expansion of
the testing & implementation and systems management sales forces.
Maintenance fee revenues increased $25.5 million, or 13.8%, to $209.5 million
in fiscal 1997 from $184.0 million in fiscal 1996. The Company continues to
experience growth in maintenance fees for all of its product families due to
the growth in the number of installed copies of its products and its relatively
high rate of maintenance contract renewals.
Revenues from professional services increased $80.8 million, or 39.7%, to
$284.5 million in fiscal 1997 from $203.6 million in fiscal 1996. This
increase was due primarily to increased business at new and existing clients
equal to $17.1 million, $13.5 million and $10.1 million at Compuware's
Minneapolis, Minnesota, Farmington Hills, Michigan and Columbus, Ohio branches,
respectively. In addition, the acquisition of Adams & Reynolds, Inc. in early
fiscal 1997, contributed approximately $8.8 million in growth in services
revenue. Revenues from professional services related to client/server systems
increased $16.8 million in fiscal 1997 over fiscal 1996.
Revenues from North American operations increased $153.5 million, or 37.8% to
$559 million in fiscal 1997 from $405.6 million in fiscal 1996. International
revenues increased $45.1 million, or 21.6%, to $253.8 million in fiscal 1997
from $208.8 million in fiscal 1996.
During fiscal 1997, the overall strengthening of the dollar against European
and Japanese currencies had a negative impact on Compuware's foreign revenues,
as compared to fiscal 1996. If exchange rates had been the same as they were
in fiscal 1996, international revenues during fiscal 1997 would have increased
$58 million, or 28.1%, instead of $45.1 million, or 21.6%, as reported.
However, the impact on revenue was partially offset by the exchange rate impact
on foreign expenses, the majority of which are in sales and marketing. The
$51.7 million or 25.3% increase in sales and marketing expenses over fiscal
1996 would have been $57.6 million, or 28.2%, if foreign exchange rates in
fiscal 1997 had been the
14
<PAGE> 15
same as they were in fiscal 1996. As indicated from the above comments,
Compuware's future operating results may be adversely impacted by the overall
strengthening of the U.S. dollar against foreign currencies of countries where
Compuware conducts business; conversely, future operating results may be
favorably impacted by an overall weakening of the U.S. dollar against foreign
currencies.
Cost of software license fees increased $735,000, or 3.6%, to $20.9 million in
fiscal 1997 from $20.1 million in fiscal 1996. Cost of software license fees
includes amortization of capitalized software, the cost of preparing and
disseminating products to customers and the cost of author royalties. The
Company capitalizes the cost of internally developed software when
technological feasibility has been achieved. The increase in these costs is due
primarily to an increase in amortization of purchased and internally developed
software products, and to a lesser extent, to increased packaging and
distribution costs. As a percentage of software license fees, these costs
decreased to 6.5% in fiscal 1997 from 8.9% in fiscal 1996.
Cost of maintenance increased $411,000, or 1.5%, to $27.3 million in fiscal
1997 from $26.9 million in fiscal 1996. Cost of maintenance consists of the
cost of maintenance programmers and product support personnel and the
computing, facilities and benefits costs allocated to such personnel. The
increase in cost of maintenance was due primarily to the increase in
maintenance and support staff in order to support the worldwide growth of the
installed base. As a percentage of maintenance fees, these costs decreased to
13.0% for fiscal 1997 from 14.6% in fiscal 1996.
Cost of professional services increased $76.2 million, or 43.7%, to $250.4
million in fiscal 1997 from $174.2 million in fiscal 1996. Cost of
professional services includes all costs of the Company's professional services
business, including the personnel costs of the professional, management and
administrative staff of the Company's services business and the facilities and
benefits costs allocated to such personnel. The increase in these expenses was
due primarily to an increase of 1,141 professional staff to 3,522 people at the
end of fiscal 1997, as compared to 2,381 people at the end of fiscal 1996. As
a percentage of professional services fees, these costs increased to 88.0% in
fiscal 1997 from 85.6% in fiscal 1996.
Software product development costs increased $1.7 million, or 4.0% to $44.5
million in fiscal 1997 from $42.8 million in fiscal 1996. Before the
capitalization of internally developed software products, total research and
development expenditures decreased to $54.3 million, or 2.5%, in fiscal 1997
from $55.7 million in fiscal 1996. Software product development costs consist
of the cost of programming personnel, the facilities, computing and benefits
costs allocated to such personnel and the costs of preparing user and
installation guides for the Company's software products, less the amount of
software development costs capitalized during the fiscal year. The decrease in
these costs was due primarily to the consolidation of product development
facilities and cross-training of certain development staff personnel. This was
offset by a 5.5% increase in software development staff needed to meet the
demand for new and enhanced products. Those major development projects that
achieved technological feasibility for fiscal 1997 included the major new
release of UNIFACE, two new interactive analysis and debugging products, two
new fault diagnosis products, two new file and data management products, three
automated testing products and one systems management product.
Sales and marketing costs increased $51.7 million, or 25.3%, to $256.1 million
in fiscal 1997 from $204.4 million in fiscal 1996. Sales and marketing costs
consist of the sales and marketing expenses associated with the Company's
products business, which include costs of direct sales, sales support and
marketing staff, the facilities and benefits costs allocated to such personnel
and the costs of marketing and sales incentive programs. The increase in sales
and marketing costs was largely attributable to the expansion of the worldwide
sales force and higher sales commissions associated with increased product
sales. Including the increase in sales staff for the Company's client/server
products, the direct sales and sales support staff increased by 307 to 1,130
people at the end of fiscal 1997, as compared to 823 at the end of fiscal 1996.
As a percentage of software license fees, sales and marketing costs decreased
from 90.2% in fiscal 1996 to 80.3% in fiscal 1997.
15
<PAGE> 16
Administrative and general costs increased $9.7 million, or 25.2%, to $48.2
million in fiscal 1997 from $38.5 million in fiscal 1996. Administrative and
general costs consist of facilities, computing, compensation and benefit costs
of the Company's executive officers, legal, human resources, finance,
administrative and recruiting staffs and other personnel. The increase in these
costs was due primarily to the increase in the costs of executive compensation,
plus additional costs of employee development programs, legal services and
corporate communications necessary to support the Company's growth. As a
percentage of total revenues, administrative and general costs decreased from
6.3% in fiscal 1996 to 5.9% in fiscal 1997.
During fiscal 1997, the Company incurred special charges of $21.8 million
related to purchased research and development acquired in connection with the
purchase of Direct Technology Limited. Since the research and development in
process had not reached technological feasibility, this amount was expensed in
accordance with Statement of Financial Accounting Standards No. 2.
Net interest and investment income for fiscal 1997 was $5.7 million as compared
to $7.0 million in fiscal 1996. This decrease in income was due primarily to
lower average cash and investment balances as a result of large cash
expenditures for acquisitions.
Income before income taxes increased approximately $70.6 million, or 89.6%, to
$149.4 million, as compared to income before income taxes of $78.8 million in
fiscal 1996. Excluding special charges, Compuware's income before income taxes
would have increased $56.8 million, or 49.6%, to $171.2 million from $114.4
million in fiscal 1996. As a percentage of total revenues, income before
income taxes exclusive of special charges was 21.1% in fiscal 1997, as compared
to 18.6% in fiscal 1996.
The Company's provision for income taxes was $52.0 million in fiscal 1997,
which represents an effective tax rate of 34.8%, as compared to an income tax
provision of $34.5 million in fiscal 1996, which was an effective tax rate of
43.8%. The difference between the effective tax rate and the statutory rate
for fiscal 1997 is due primarily to the nondeductibility of the purchased
research and development incurred in connection with the DRD Promark Inc.
acquisition. Without this expense, the effective tax rate for fiscal 1997 was
33.6%. The difference between the effective tax rate and the statutory rate
for fiscal 1996 was due primarily to the non-deductibility of the purchased
research and development costs incurred during the third quarter of fiscal 1996
in connection with the CoroNet acquisition. The effective tax rate for fiscal
1996 would have been 33.3% without this cost.
FISCAL 1996 COMPARED TO FISCAL 1995
Total revenues for fiscal 1996 were $614.4 million, an increase of $80.5
million, or 15.1%, as compared to $533.9 million for fiscal 1995. The Company
experienced growth in all revenue categories during fiscal 1996.
Software license fees increased $3.1 million, or 1.4%, to $226.7 million in
fiscal 1996 from $223.6 million in fiscal 1995. Almost all of the Company's
product families experienced growth in license sales. These increases were
accomplished mainly in the fourth quarter, and were due primarily to the
expansion of the Company's sales force in both the North American and
International channels.
Maintenance fee revenues increased $30.2 million, or 19.6%, to $184.0 million
in fiscal 1996 from $153.8 million in fiscal 1995. The Company continues to
experience growth in maintenance fees for all of its product families due to
the growth in the number of installed copies of its products and its relatively
steady rate of maintenance contract renewals.
Revenues from professional services increased $47.1 million, or 30.1%, to
$203.6 million in fiscal 1996 from $156.5 million in fiscal 1995. This
increase was due primarily to increased business at new and existing clients
equal to $11.5 million, $9.1 million and $5.0 million at Compuware's Farmington
Hills, Michigan, Milwaukee, Wisconsin and Columbus, Ohio branches,
respectively; of the increase $13.4 million related to client/server systems.
16
<PAGE> 17
Revenues from North American operations increased $61.3 million, or 17.8%, to
$405.6 million in fiscal 1996 from $344.3 million in fiscal 1995.
International revenues increased $19.2 million, or 10.1%, to $208.8 million in
fiscal 1996 from $189.6 million in fiscal 1995.
During fiscal 1996, the overall weakening of the dollar against European and
Japanese currencies had a positive impact on Compuware's foreign revenues, as
compared to fiscal 1995. If exchange rates had been the same as they were in
fiscal 1995, international revenues during fiscal 1996 would have increased
$13.2 million, or 7.0%, instead of $19.2 million, or 10.1%, as reported.
However, the impact on revenue was partially offset by the exchange rate impact
on foreign expenses, the majority of which are in sales and marketing. The
$29.6 million and 16.9% increase in sales and marketing expenses over fiscal
1995 would have been $27.7 million, or 15.8%, if foreign exchange rates in
fiscal 1996 had been the same as they were in fiscal 1995. As can be inferred
from the above comments, Compuware's future operating results may be adversely
impacted by the overall strengthening of the U.S. dollar against foreign
currencies of countries where Compuware conducts business; conversely, future
operating results may be favorably impacted by an overall weakening of the U.S.
dollar against foreign currencies.
Cost of software license fees increased $5.2 million, or 35.3%, to $20.1
million in fiscal 1996 from $14.9 million in fiscal 1995. Cost of software
license fees includes amortization of capitalized software, the cost of
preparing and disseminating products to customers and the cost of author
royalties. The Company capitalizes the cost of internally developed software
when technological feasibility has been achieved. The increase in these costs
is due primarily to an increase in amortization of purchased and internally
developed software products, and to a lesser extent, an increase in author
royalties. As a percentage of software license fees, these costs increased to
8.9% in fiscal 1996 from 6.7% for fiscal 1995.
Cost of maintenance increased $2.8 million, or 11.4%, to $26.9 million in
fiscal 1996 from $24.1 million in fiscal 1995. Cost of maintenance consists of
the cost of maintenance programmers and product support personnel and the
computing, facilities and benefits costs allocated to such personnel. The
increase in cost of maintenance was due primarily to the increase in
maintenance and support staff in order to support the worldwide growth of the
installed base. As a percentage of maintenance fees, these costs decreased to
14.6% for fiscal 1996 from 15.7% in fiscal 1995.
Cost of professional services increased $40.4 million, or 30.2%, to $174.2
million in fiscal 1996 from $133.8 million in fiscal 1995. Cost of
professional services includes all costs of the Company's professional services
business, including the personnel costs of the professional, management and
administrative staff of the Company's services business and the facilities and
benefits costs allocated to such personnel. The increase in these expenses was
due primarily to an increase of 476 professional staff to 2,381 people at the
end of fiscal 1996, as compared to 1,905 people at the end of fiscal 1995.
Software product development costs increased $11.0 million, or 34.5%, to $42.8
million in fiscal 1996 from $31.8 million in fiscal 1995. Before the
capitalization of internally developed software products, total research and
development expenditures increased to $55.7 million, or 21.8%, in fiscal 1996
from $45.7 million in fiscal 1995. Software product development costs consist
of the cost of programming personnel, the facilities, computing and benefits
costs allocated to such personnel and the costs of preparing user and
installation guides for the Company's software products, less the amount of
software development costs capitalized during the fiscal year. The increase in
these costs was due primarily to the growth of the product development staff in
order to meet the demand for new and enhanced products. Those major
development projects that achieved technological feasibility for fiscal 1996
included the new releases of UNIFACE, three new interactive analysis and
debugging products, three new fault diagnosis products, two new file and data
management products and one automated testing product.
Sales and marketing costs increased $29.6 million, or 16.9%, to $204.4 million
in fiscal 1996 from $174.8 million in fiscal 1995. Sales and marketing costs
consist of the sales and marketing expenses associated with the Company's
products business, which include costs of direct sales, sales support and
marketing staff, the facilities and benefits costs allocated to such personnel
and the costs of marketing and sales
17
<PAGE> 18
incentive programs. The increase in sales and marketing costs was largely
attributable to the expansion of the worldwide sales force. Including the
increase in sales staff for the Company's client/server products, the direct
sales and sales support staff increased by 120 to 823 people at the end of
fiscal 1996, as compared to 703 at the end of fiscal 1995.
Administrative and general costs increased $4.5 million, or 13.2%, to $38.5
million in fiscal 1996 from $34.0 million in fiscal 1995. Administrative and
general costs consist of facilities, computing, compensation and benefit costs
of the Company's executive officers, legal, human resources, finance,
administrative and recruiting staffs and other personnel. The increase in these
costs was due primarily to the increase in the costs of employee development
programs and information systems necessary to support the Company's growth. As
a percentage of total revenues, administrative and general costs decreased from
6.4% in fiscal 1995 to 6.3% in fiscal 1996.
During fiscal 1996, the Company incurred special charges of $24.9 million
related to purchased research and development acquired in connection with the
purchase of CoroNet Systems Inc. Since the research and development in
process had not reached technological feasibility, this amount was expensed in
accordance with Statement of Financial Accounting Standards No. 2. In addition,
the Company recognized approximately $10.7 million of special charges related
to the reorganization of the Company's operating units and the decentralization
of certain Corporate office functions.
Net interest and investment income for fiscal 1996 was $7.0 million as compared
to $5.8 million in fiscal 1995. This increase in income was due primarily to
improved interest rates in the 1996 period as compared to the 1995 period.
Income before income taxes decreased approximately $16.4 million, or 17.2%, to
$78.8 million, as compared to income before income taxes of $95.2 million in
fiscal 1995. Excluding special charges, Compuware's income before income taxes
would have decreased $11.8 million, or 9.4%, to $114.4 million from $126.2
million in fiscal 1995. As a percentage of total revenues, income before
income taxes exclusive of special charges was 18.6% in fiscal 1996, as compared
to 23.7% in fiscal 1995.
The Company's provision for income taxes was $34.5 million in fiscal 1996,
which represents an effective tax rate of 43.8%, as compared to an income tax
provision of $33.1 million in fiscal 1995, which was an effective tax rate of
34.8%. The difference between the effective tax rate and the statutory rate
for fiscal 1996 is due primarily to the nondeductibility of the purchased
research and development expensed in connection with the CoroNet acquisition.
Without the purchased research and development expense, the effective tax rate
for fiscal 1996 would have been 33.3%.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had approximately $178.4 million in cash and
investments which resulted primarily from cash generated from operations.
During fiscal 1997, 1996 and 1995, Compuware generated $134.3 million, $78.2
million and $96.5 million, respectively, in operating cash flow. During these
periods, the Company had capital expenditures which included property and
equipment, capitalized research and software development and purchased software
of $38.0 million, $29.4 million and $70.0 million, respectively.
During fiscal 1997, the Company completed the acquisition of certain
professional service companies for a combined total of $47,045,000 net cash
expended. The companies purchased were Technalysis, Adams & Reynolds, MC
Squared Incorporated and Virtual Innovation, Inc. In April 1997, the Company
acquired all of the outstanding stock of Vine Systems Company Ltd., a
professional services company. Each acquisition was accounted for as a
purchase. See Notes 2 and 13 of Notes to Consolidated Financial Statements.
During fiscal 1997, the Company also acquired all of the outstanding stock of
certain privately-held software product companies for an aggregate cost of
$29,637,000. The companies purchased were
18
<PAGE> 19
Direct Technology Limited and DRD Promark, Inc. Of the total purchase
price, $23,837,000 was paid in cash and $5,800,000 in notes that are due in
April 1999. In addition, $21,790,000 was allocated to in-process research and
development based upon independent valuations of the expected future cash flows
of the related products, less costs to complete the development. In accordance
with SFAS No. 2 "Accounting for Research and Development Costs", this amount
was expensed as of the purchase date. See Note 2 of Notes to Consolidated
Financial Statements.
Compuware believes its available cash resources, together with cash flow from
operations, will be sufficient to meet its cash needs for the foreseeable
future.
Compuware has a line of credit which permits the Company to borrow up to $30
million. The line of credit expires on September 1, 1998 and its availability
is subject to a number of financial covenants (see Note 7 of Notes to
Consolidated Financial Statements). During the last fiscal year, the Company
had no borrowings under this line of credit. The Company's long term debt
consists of $6.1 million of pound-denominated notes issued as part of the
Direct Technology Limited acquisition (see Notes 2 and 7 of Notes to
Consolidated Financial Statements). The notes are due April 30, 1999 and
interest is paid semiannually at the six month LIBOR rate. The notes are
payable in pounds sterling and are revalued monthly using the month end
exchange rate.
Compuware uses a synthetic hedging program employing forward contracts on the
local currencies of its major foreign subsidiaries. Rather than hedging
individual transactions denominated in one currency the Company hedges the
aggregate of such transactions in each currency, or the balance due from the
foreign subsidiary to the U.S. at a given point, usually at month end. The
normal holding period for any hedge entered into is 30 to 90 days. The Company
does not take firm delivery of the foreign currency amounts and it does not
hedge anticipated transactions or outstanding commitments. The difference
between the contract rate and the current market rate on the maturity date is
paid or received from the bank on the settlement date. The gain or loss
incurred as of month end on any open contract is recognized in the statement of
income. See Note 1 of Notes to Consolidated Financial Statements. The Board
of Directors has approved the Company's hedging program. The Chief Financial
Officer reviews and approves all hedging transactions.
At March 31, 1997, the Company had approximately $75.6 million in net operating
loss carryforwards available for income tax purposes. Of this amount,
approximately $7.0 million is available to offset a domestic subsidiary's
federal income taxes and approximately $68.6 million related to various foreign
jurisdictions. The Company has evaluated the realizability of such loss
carryforwards using the "more likely than not" criteria established under SFAS
109 and has recorded an estimated valuation allowance.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128 (Earnings Per Share) in February 1997. The
adoption of this new standard is not expected to have a material impact on the
Company's financial statements.
19
<PAGE> 20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REFERENCE SHOULD BE MADE TO ITEM 14 (A) 1 FOR AN INDEX TO THE CONSOLIDATED
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Compuware Corporation:
We have audited the accompanying consolidated balance sheets of Compuware
Corporation and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended March 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Compuware Corporation and its
subsidiaries as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
May 5, 1997
20
<PAGE> 21
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS NOTES 1997 1996
----- -------- --------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $107,341 $ 77,771
Investments 4 26,604 30,151
Accounts receivable, less allowance for doubtful
accounts of $6,941 and $5,244 290,922 220,918
Deferred tax asset 8 9,747 17,566
Income taxes refundable 9,593 6,965
Prepaid expenses and other current assets 7,605 8,396
-------- --------
Total current assets 451,812 361,767
-------- --------
INVESTMENTS 4 44,465 28,379
-------- --------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 5 70,578 56,603
-------- --------
CAPITALIZED SOFTWARE, LESS ACCUMULATED
AMORTIZATION OF $53,933 AND $40,576 53,355 52,473
-------- --------
OTHER:
Accounts receivable 54,637 29,272
Deferred tax asset 8 11,084
Excess of cost of investment over fair value of net
assets acquired, less accumulated amortization
of $5,417 and $2,071 2 55,700 12,206
Other assets 6 13,776 15,026
-------- --------
Total other assets 135,197 56,504
-------- --------
TOTAL ASSETS $755,407 $555,726
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY NOTES 1997 1996
----- --------- --------
CURRENT LIABILITIES:
<S> <C> <C> <C>
Accounts payable $ 24,275 $ 16,951
Accrued expenses 53,562 46,171
Accrued bonuses and commissions 30,100 15,330
Deferred revenue 164,367 141,473
--------- --------
Total current liabilities 272,304 219,925
LONG TERM DEBT 7 6,068
DEFERRED REVENUE 31,399 15,825
DEFERRED INCOME TAXES 8 991
--------- --------
Total liabilities 309,771 236,741
--------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - authorized
5,000,000 shares
Common stock, $.01 par value - authorized
80,000,000 shares; issued and outstanding
42,965,885 and 42,298,023 shares in 1997
and 1996, respectively 13 429 423
Additional paid-in capital 13 213,422 185,349
Retained earnings 232,630 135,194
Foreign currency translation adjustment (845) (1,016)
Unrealized loss on marketable securities 4 (965)
-------- --------
Total shareholders' equity 445,636 318,985
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $755,407 $555,726
======== ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Software license fees $318,907 $226,690 $223,589
Maintenance fees 209,521 184,039 153,828
Professional services fees 284,468 203,630 156,460
--------- -------- --------
Total revenues 812,896 614,359 533,877
--------- -------- --------
OPERATING EXPENSES:
Cost of software license fees 20,881 20,146 14,894
Cost of maintenance 27,278 26,867 24,111
Cost of professional services 250,405 174,215 133,823
Software product development 44,494 42,792 31,825
Sales and marketing 256,139 204,403 174,829
Administrative and general 48,233 38,537 33,951
Purchased research and development 2 21,790 24,943 11,990
Restructuring and merger-related costs 3 10,688 10,547
--------- -------- --------
Total operating expenses 669,220 542,591 435,970
--------- -------- --------
INCOME FROM OPERATIONS 143,676 71,768 97,907
OTHER INCOME 5,710 7,015 5,805
--------- -------- --------
INCOME BEFORE MERGER COSTS - ESCROW CLAIMS 149,386 78,783 103,712
MERGER COSTS - ESCROW CLAIMS 3 8,531
--------- -------- --------
INCOME BEFORE INCOME TAXES 149,386 78,783 95,181
INCOME TAX PROVISION 51,950 34,541 33,084
--------- -------- --------
NET INCOME $ 97,436 $ 44,242 $ 62,097
========= ======== ========
Net income per common share, on a post-split basis 13 $ 1.08 $ 0.49 $ 0.65
========= ======== ========
Weighted average number of common and
common equivalent shares outstanding, on a
post-split basis 13 89,935 89,737 95,369
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 23
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-In Retained
Shares Amount Capital Earnings
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1994 (Note 13) 44,105,631 $441 $168,130 $87,160
Net income 62,097
Issuance of common stock 30,000 1,155
Foreign currency translation adjustment
Exercise of employee stock options
and related tax benefit (Note 11) and other 1,371,511 14 17,810
Unrealized loss on marketable securities
---------- ---- -------- --------
BALANCE AT MARCH 31, 1995 45,507,142 455 187,095 149,257
Net income 44,242
Issuance of common stock 90,000 1 1,507
Purchase of common stock (2,915,800) (29) (11,940) (58,305)
Return of Uniface escrow shares (Note 3) (678,719) (7) 7
Acquisition tax benefits 3,852
Foreign currency translation adjustment
Unrealized loss on marketable securities
Exercise of employee stock options
and related tax benefit (Note 11) and other 295,400 3 4,828
---------- ---- -------- --------
BALANCE AT MARCH 31, 1996 42,298,023 423 185,349 135,194
Net income 97,436
Issuance of common stock 40,000 2,330
Acquisition tax benefits 6,603
Foreign currency translation adjustment
Realized gain on sale of marketable
securities (Note 4)
Exercise of employee stock options
and related tax benefit (Note 11) 627,862 6 19,140
---------- ---- -------- --------
BALANCE AT MARCH 31, 1997 42,965,885 $429 $213,422 $232,630
========== ==== ======== ========
<CAPTION>
Foreign Unrealized
Currency Loss On Total
Translation Marketable Shareholders'
Adjustment Securities Equity
------------ ------------- -----------
<S> <C> <C> <C>
BALANCE AT APRIL 1, 1994 (Note 13) $(1,806) $ $253,925
Net income 62,097
Issuance of common stock 1,155
Foreign currency translation adjustment 2,077 2,077
Exercise of employee stock options
and related tax benefit (Note 11) and other 17,824
Unrealized loss on marketable securities (877) (877)
------- ----- --------
BALANCE AT MARCH 31, 1995 271 (877) 336,201
Net income 44,242
Issuance of common stock 1,508
Purchase of common stock (70,274)
Return of Uniface escrow shares (Note 3)
Acquisition tax benefits 3,852
Foreign currency translation adjustment (1,287) (1,287)
Unrealized loss on marketable securities (88) (88)
Exercise of employee stock options
and related tax benefit (Note 11) and other 4,831
------- ------ --------
BALANCE AT MARCH 31, 1996 (1,016) (965) 318,985
Net income 97,436
Issuance of common stock 2,330
Acquisition tax benefits 6,603
Foreign currency translation adjustment 171 171
Realized gain on sale of marketable
securities (Note 4) 965 965
Exercise of employee stock options
and related tax benefit (Note 11) 19,146
------- ------ --------
BALANCE AT MARCH 31, 1997 $ (845) $ - $445,636
======= ====== ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 97,436 $ 44,242 $ 62,097
Adjustments to reconcile net income to cash provided by
operations:
Purchased research and development 21,790 24,943 11,990
Depreciation and amortization 15,452 8,567 8,858
Amortization of capitalized software 15,949 13,348 9,265
Tax benefit from exercise of stock options 5,306 1,467 6,061
Issuance of common stock to Employee Stock Ownership Trust 2,330 1,508 1,155
Other (290) 999 3,408
Net change in assets and liabilities, net of effects from
acquisitions:
Accounts receivable (88,574) (57,736) (53,021)
Prepaid expenses and other current assets 1,361 5,153 (6,485)
Other assets 88 (5,898) (1,924)
Accounts payable and accrued expenses 25,960 15,935 7,905
Deferred revenue 37,797 39,000 30,663
Refundable income taxes 3,985 (3,113)
Deferred income taxes (4,256) (10,219) 16,517
--------- --------- ---------
Net cash provided by operating activities 134,334 78,196 96,489
--------- --------- ---------
CASH USED IN INVESTING ACTIVITIES:
Purchase of:
Businesses (69,083) (26,113)
Property and equipment (23,442) (15,789) (33,508)
Capitalized software (14,544) (13,647) (19,018)
Minority interest in subsidiary (9,419)
Acquired software (17,500)
Investments:
Proceeds from maturity 63,202 162,227 84,763
Purchases (74,491) (95,340) (129,802)
Other (246) (2,661) (30)
--------- --------- ---------
Net cash used in investing activities (118,604) (742) (115,095)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (70,274)
Net proceeds from exercise of stock options 13,840 3,364 11,763
--------- --------- ---------
Net cash provided by (used in) financing activities 13,840 (66,910) 11,763
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,570 10,544 (6,843)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 77,771 67,227 74,070
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 107,341 $ 77,771 $ 67,227
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 25
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the
accounts of Compuware Corporation and its wholly owned subsidiaries after
elimination of all significant intercompany balances and transactions. The
financial statements have been prepared in conformity with generally accepted
accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and the
disclosure of contingencies at March 31, 1997 and 1996 and the results of
operations for the years ended March 31, 1997, 1996 and 1995. While management
has based their assumptions and estimates on the facts and circumstances known
at March 31, 1997, final amounts may differ from estimates.
Business - Compuware Corporation develops, markets and supports an integrated
set of systems software products designed to improve the productivity of data
processing professionals in application development, implementation and
maintenance. In addition, the Company's professional services division offers
business systems analysis, design, programming and implementation as well as
software conversion and systems planning and consulting. The Company's
products and services are offered worldwide across a broad spectrum of
technologies, including mainframe, mid-range and client/server platforms.
Revenue Recognition - Revenue from licensing of software products is recognized
upon shipment of the products, provided that no significant obligations remain
and collection of the related receivable is deemed probable. A portion of new
license fees, generally 15%, is deferred and recognized ratably over the
initial maintenance period, generally one year. Annual product maintenance fees
are recognized as revenue ratably over the contract period. Professional
services fees are recognized in the period the services are performed.
Cash and Cash Equivalents - For the purpose of the statement of cash flows, the
Company considers all investments with an original maturity of three months or
less to be cash equivalents.
Investments consist of municipal obligations and marketable equity securities.
Municipal obligations are classified as held-to-maturity and carried at
amortized cost. Marketable equity securities are classified as
available-for-sale and are carried at market value. Unrealized losses on
available-for-sale securities are reported as a separate component of
shareholders' equity. Those investments that mature within one year from the
balance sheet date are classified as short-term. The amortization of bond
premiums and discounts are included in interest income.
Property and Equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets.
Capitalized Software includes the costs of purchased and internally developed
software products and are stated at the lower of unamortized cost or net
realizable value. Net purchased software included in capitalized software at
March 31, 1997 and 1996 is $20,284,000 and $22,687,000, respectively. In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed", capitalization of internally developed software
products begins when technological feasibility of the product is established.
Software product development includes all expenditures for research and
development, net of amounts capitalized. Total software development costs
incurred internally by the Company were $54,292,000, $55,705,000 and
$45,736,000 in fiscal 1997, 1996 and 1995,
25
<PAGE> 26
respectively, of which $9,798,000, $12,913,000 and $13,910,000, respectively,
were capitalized. The cost of capitalized software is amortized over the
product's estimated useful life or five years, whichever is less. Amortization
begins when the product is available for general release to customers.
Capitalized software amortization is included in "Cost of software license fees"
in the statement of income.
Excess of Cost Over Fair Value of Net Assets Acquired ("goodwill") is being
amortized over periods ranging from 15 to 20 years using the straight-line
method.
Fair Value of Financial Instruments - The carrying value of cash equivalents,
accounts receivable and accounts payable are a reasonable estimate of their
fair value.
Income Taxes - The Company accounts for income taxes using the asset and
liability approach. Deferred income taxes are provided for temporary
differences in reporting income and expenses for income tax and financial
statement purposes and for the differences between the tax bases of assets or
liabilities and their reported amounts in the financial statements.
Foreign Currency Translation - The Company's foreign subsidiaries use the local
currency as the functional currency. Accordingly, assets and liabilities in
the consolidated balance sheets have been translated at the rate of exchange at
the respective balance sheet dates, and revenues and expenses have been
translated at average exchange rates prevailing during the year the
transactions occur. Translation adjustments have been excluded from the results
of operations and are reported as a separate component of shareholders' equity.
Foreign Currency Transactions and Derivatives - Gains and losses from foreign
currency transactions are included in the determination of net income. To
offset the risk of future currency fluctuations on receivables due from foreign
subsidiaries, the Company enters into foreign exchange contracts to sell
currencies at specified rates on specific dates. Market value gains and
losses on these contracts are recognized, offsetting foreign exchange gains or
losses on foreign receivables. The Company does not use foreign exchange
contracts to hedge anticipated transactions. The net foreign currency
transaction gain (loss) was ($1,446,000), $192,000 and $2,569,000 for the
fiscal years ended March 31, 1997, 1996 and 1995, respectively.
At March 31, 1997, the Company had contracts maturing through May 1997 to sell
$51,937,000 in foreign currencies. At March 31, 1996, the Company had
contracts maturing through June 1996 to sell $55,279,000 in foreign currency.
Earnings Per Share is computed based upon the weighted average number of common
shares and common equivalent shares outstanding during the year. When
dilutive, stock options are included as common equivalent shares using the
treasury stock method.
Long-Lived Assets and Long-Lived Assets to Be Disposed of - Effective April 1,
1996, Compuware adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of". The initial
adoption of this new accounting standard did not have a material effect on
Compuware's consolidated operating results or financial position.
Stock-Based Compensation - Effective April 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation", and has elected to
implement the disclosure provisions of this standard, which are presented in
Note 11 of Notes to Consolidated Financial Statements.
26
<PAGE> 27
2. ACQUISITIONS
During fiscal 1997, the Company completed the acquisition of certain
professional service companies for a combined total of $47,045,000 net cash
expended. The companies purchased were Technalysis ($25,061,000), Adams &
Reynolds ($12,410,000), MC Squared Incorporated ($9,212,000) and Virtual
Innovation, Inc. ($362,000). All of the acquisitions were accounted for as
purchases, and accordingly, assets and liabilities acquired have been recorded
at fair value as of their respective acquisition dates. The aggregate amount by
which the acquisition cost exceeded the fair value of the net assets acquired
was approximately $43,177,000 and is being amortized over a fifteen-year period
on a straight line basis.
The Company also acquired all of the outstanding stock of certain
privately-held software product companies for an aggregate cost of $29,637,000.
The companies purchased were Direct Technology Limited ($23,800,000) and DRD
Promark, Inc. ($5,837,000). Of the total purchase price, $23,837,000 was paid
in cash and $5,800,000 in notes that are due in April 1999. The aggregate
amount by which the acquisition cost exceeded the fair value of the net assets
acquired was approximately $3,165,000 and is being amortized over a
fifteen-year period on a straight-line basis. Of the total purchase price,
$21,790,000 was allocated to in-process research and development based upon
independent valuations of the expected future cash flows of the related
products, less costs to complete the development. In accordance with SFAS No.
2 "Accounting for Research and Development Costs", this amount was expensed
as of the purchase date.
In September 1995, the Company acquired all non Company owned outstanding stock
of Compuware Nordic AS (Nordic) for approximately $9,419,000. Nordic was
formerly a majority owned subsidiary which distributes the Company's products
in Norway and Denmark. The acquisition of the minority interest has been
accounted for as a purchase. The amount by which the acquisition cost exceeded
the fair value of the net assets acquired of approximately $8,592,000 is being
amortized over a fifteen-year period on a straight-line basis.
In November 1995, the Company acquired all of the outstanding stock of CoroNet
Systems, Inc. (CoroNet) for approximately $27,000,000 in cash. The acquisition
has been accounted for as a purchase and, accordingly, assets and liabilities
acquired have been recorded at fair value as of the date of the acquisition.
Of the total purchase price, $24,943,000 was allocated to in-process
development projects based on the expected future cash flows of the related
products, less costs to complete the development, and in accordance with SFAS
No. 2 this amount was expensed as of the purchase date.
In May 1994, the Company issued 6,959,910 shares of its common stock in
exchange for all of the outstanding common stock of Uniface Holding B.V.
(Uniface), a supplier of client/server development tools for enterprise
applications. Uniface also provides professional services that support the use
of the software. In addition, options to acquire 1,027,205 shares of the
Company's stock were exchanged for all outstanding Uniface options. The merger
was accounted for as a pooling of interests.
In June 1994, the Company acquired certain software technology for $17,500,000
in cash. Of the total purchase price, $11,990,000 was allocated to in-process
and future software development projects and, in accordance with SFAS No. 2
this amount was expensed as of the purchase date. The remaining $5,510,000 was
recorded as capitalized software.
3. RESTRUCTURING AND MERGER-RELATED COSTS
In fiscal 1996, the Company recognized $10,688,000 of special charges related
to the reorganization of the Company's operating units and the decentralization
of certain corporate office functions. The components of the restructuring
reserve, as ultimately executed, included $5,806,000 for severance
27
<PAGE> 28
related costs for employees made redundant by the reorganization, and $4,882,000
for estimated future leasing costs of abandoned offices in the United States and
Europe. In fiscal 1997 and fiscal 1996, $4,685,000 and $1,761,000 respectively,
of the restructuring costs were expended, including substantially all of the
severance and outplacement costs. At March 31, 1997, the costs accrued for
future lease expenses of approximately $4,242,000 are expected to be paid over a
period not to exceed the remaining lease terms, which extend through April 2002.
In fiscal 1995, the Company recognized $10,547,000 of special charges related
to the merger and integration of Uniface. Such costs included $5,768,000,
related to financial advisory fees, costs of an exchange agreement and a
registration statement. Such provision also included restructuring costs of
$4,779,000, consisting of severance and outplacement ($2,410,000), lease buyout
costs ($840,000) and professional and other costs related to legal structuring
and completion of a secondary offering ($1,529,000). All such costs were paid
by March 31, 1996.
In fiscal 1995, the Company recorded approximately $8,531,000 in merger costs
which consisted primarily of accounts receivable that the Company determined
were not collectible, a write-off of certain capitalized software development
costs and reserves for certain other contractual and personnel-related
obligations. The Company received reimbursement substantially in excess of
this amount from the Uniface shareholders through a share escrow agreement
which was entered into at the time of the merger. The escrow agreement
required that the reimbursement be in Compuware common stock.
4. INVESTMENTS
Municipal obligations - The Company's municipal obligations are classified as
held-to-maturity and are carried at amortized cost. The Company will receive
the face value of these bonds at their maturity date and, accordingly, has not
recognized any gain or loss resulting from current market price fluctuations.
The amortized cost and aggregate market price of the debt securities, by
maturity, are as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
----------------------------------------------
1997 1996
--------------------- ----------------------
Less than 1 - 5 Less than 1 - 5
One Year Years One Year Years
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Amortized cost $ 26,604 $ 44,465 $ 26,311 $ 28,379
Aggregate market price $ 26,614 $ 44,209 26,357 28,269
Difference between --------- -------- --------- --------
amortized cost and
current market $ (10) $ 256 $ (46) $ 110
========= ======== ========= ========
</TABLE>
Marketable equity securities - Marketable equity securities held by the Company
at March 31, 1996 were classified as available-for-sale and, consequently,
recorded at fair value of $3,840,000. Unrealized gains and losses were
recognized as a separate component of shareholders' equity. During fiscal 1997,
these securities were sold, the proceeds from which were approximately $6.2
million. The gain realized during fiscal 1997 related to these sales was
approximately $905,000. The Company uses the specific identification method as
a basis for determining cost and calculating realized gains.
28
<PAGE> 29
5. PROPERTY AND EQUIPMENT
Property and equipment, summarized by major classification (in thousands):
<TABLE>
<CAPTION>
March 31,
-----------------
1997 1996
-------- -------
<S> <C> <C>
Land $ 1,297 $ 1,297
Buildings 26,293 24,745
Leasehold improvements 10,242 9,379
Furniture and fixtures 24,601 17,806
Computer equipment and software 47,069 35,356
-------- --------
109,502 88,583
Less accumulated depreciation and
amortization 38,924 31,980
-------- --------
Total $ 70,578 $ 56,603
======== ========
</TABLE>
6. RELATED PARTY TRANSACTIONS
At March 31, 1997 and 1996, the Company has a $300,000 note receivable from a
company controlled by certain shareholders of the Company. The note matures in
fiscal 1999 and bears interest at 5.53%. This note is included in "Other
assets".
The Company has agreed to pay 75% of the annual premiums on a life insurance
policy for the Chief Executive Officer. The Company has received a collateral
assignment of the policy and will recover the premiums advanced upon the
termination of the policy or the death of the officer. For each of the years
ended March 31, 1997 and 1996, the total premiums paid by the Company were
approximately $185,000. The aggregate amount paid of approximately $927,000 is
included in "Other assets".
The following items included in operations were paid to or from companies
controlled by certain officers, directors of the Company or their affiliates
(in thousands):
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------
1997 1996 1995
--------- ------- --------
<S> <C> <C> <C>
Revenues
Professional services fees $286 $1,346 $ 167
Software license fees 1,000
Expenses
Marketing and promotion $823 $ 644 $ 659
Printing 759 908 692
Professional services 618 185 100
</TABLE>
7. CREDIT FACILITIES AND LONG-TERM DEBT
Cash paid for interest totaled approximately $450,000, $313,000 and $385,000
for the years ended March 31, 1997, 1996 and 1995, respectively.
Revolving Bank Credit Facility - The Company has a revolving bank credit
facility which provides for borrowings of up to $30,000,000 through September
1, 1998. The Company is obligated for a commitment fee of .125% per annum for
any unused portion of the credit facility. The Company may choose between
various interest rate options. The revolving credit arrangement contains
affirmative
29
<PAGE> 30
and negative covenants including limitations on dividend payments, loans and
advances. The Company had no borrowings outstanding at March 31, 1997 and 1996.
Long term debt - The Company's long term debt consists of $6.1 million of
pound-denominated notes issued as part of the Direct Technology Limited
acquisition (see note 2 of Notes to Consolidated Financial Statements). The
notes are due April 30, 1999 and interest is paid semiannually at the six month
LIBOR rate. The notes are payable in Pounds Sterling and are revalued monthly
using the month end exchange rate.
8. INCOME TAXES
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
March 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued vacation $ 2,682 $ 1,597
Purchased software 9,371 4,529
Net operating loss carryforwards 26,138 19,594
Other 7,288 9,457
------- -------
45,479 35,177
Less valuation allowance 5,065 3,883
------- -------
Net deferred tax assets 40,414 31,294
Current portion 10,267 17,979
------- -------
Long-term portion $30,147 $13,315
======= =======
Deferred tax liabilities:
Capitalized research and
development costs $10,576 $ 9,909
Purchased software 3,373 4,180
Other 5,634 630
------- -------
Total deferred tax liabilities 19,583 14,719
Current portion 520 413
------- -------
Long-term portion $19,063 $14,306
======= =======
The income tax provision (benefit) includes the following (in thousands):
Year Ended March 31,
---------------------------------------
1997 1996 1995
---------- ---------- ----------
Current:
<S> <C> <C> <C>
Federal $ 46,073 $ 41,354 $ 33,193
Foreign 6,506 952 3,506
State 4,500 3,000 1,759
--------- -------- ---------
Total current tax provision 57,079 45,306 38,458
--------- -------- ---------
Deferred:
Federal 6,050 (382) (1,698)
Foreign (11,179) (10,383) (3,676)
--------- -------- ---------
Total deferred tax benefit (5,129) (10,765) $ (5,374)
--------- -------- ---------
Total income tax provision $ 51,950 $ 34,541 $ 33,084
========= ======== =========
</TABLE>
30
<PAGE> 31
The Company's income tax expense differed from the amount computed on
pre-tax income at the U.S. federal income tax rate of 35% for the following
reasons (in thousands):
<TABLE>
Year Ended March 31,
------------------------------
1997 1996 1995
-------- ------ -------
<S> <C> <C> <C>
Federal income tax at statutory rates $52,285 $27,574 $33,313
Increase (decrease) in taxes:
Items related to acquisitions 1,792 9,332 2,101
Foreign Sales Corporation subsidiary (4,638) (3,190) (2,751)
Research and development credit (1,300) (325) (1,221)
Other, net 3,811 1,150 1,642
------- ------- -------
Provision for income taxes $51,950 $34,541 $33,084
======= ======= =======
</TABLE>
At March 31, 1997, the Company has net operating loss carryforwards for
income tax purposes of approximately $75,643,000 which expire as follows (in
thousands):
Year ending March 31:
1999 $ 476
2000 6,859
2001 2,260
2002 7,561
2003 992
2004 2,430
2006 1,088
2008 919
2009 2,620
Unlimited carryforward 50,438
Of this amount, approximately $7,045,000 is available to offset a domestic
subsidiary's federal income taxes and approximately $68,598,000 relates to
various foreign jurisdictions.
Cash paid for income taxes totaled approximately $46,760,000, $45,414,000
and $9,849,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
31
<PAGE> 32
9. GEOGRAPHIC SEGMENT INFORMATION
Revenues and income (loss) for each of the three years in the period ended
March 31, 1997 and identifiable assets at March 31, 1997, 1996 and 1995
are as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
North America $559,058 $405,603 $344,310
European subsidiaries 180,095 150,656 139,743
Other international operations 73,743 58,100 49,824
-------- -------- --------
Total revenue $812,896 $614,359 $533,877
======== ======== ========
Income (loss) before taxes:
North America (1) $174,643 $107,486 $ 99,349
European subsidiaries (19,985) (22,203) (6,320)
Other international operations (5,272) (6,500) 2,152
-------- -------- --------
Total income before taxes (2) $149,386 $78,783 $ 95,181
======== ======== ========
Identifiable assets:
North America $568,458 $404,463 $397,145
European subsidiaries 139,307 122,448 111,942
Other international operations 47,642 28,815 15,008
-------- -------- --------
Total assets $755,407 $555,726 $524,095
======== ======== ========
</TABLE>
(1) Includes net intercompany royalty income of approximately
$87,548,000, $71,105,000 and $54,964,000 for the years ended March
31, 1997, 1996 and 1995, respectively. The income (loss) from
foreign subsidiaries reflects the corresponding net royalty
expense.
(2) Income before taxes also includes $21,790,000, $35,631,000
and $31,068,000 of special charges for the years ended March 31,
1997, 1996 and 1995, respectively (Notes 2 and 3). Exclusive of
these charges, income (loss) before taxes is as follows:
<TABLE>
<CAPTION>
March 31,
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income (loss) before special charges and taxes:
North America $196,433 $139,964 $124,184
European subsidiaries (19,985) (19,284) (87)
Other international operations (5,272) (6,266) 2,152
-------- -------- --------
Total income before special charges and taxes $171,176 $114,414 $126,249
======== ======== ========
</TABLE>
32
<PAGE> 33
10. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases building and office space and computer equipment
under various operating lease agreements extending through fiscal 2006. Certain
of these leases contain provisions for renewal options and escalation clauses.
The following is a schedule of future minimum rental payments for the next five
years (in thousands):
Year ending March 31:
1998 $19,752
1999 17,578
2000 14,051
2001 9,727
2002 5,750
Thereafter 7,223
-------
Total $74,081
=======
Lease expense for the years ended March 31, 1997, 1996 and 1995 under all
operating leases amounted to approximately $16,815,000, $10,078,000 and
$9,668,000, respectively.
Employment Contracts - The Company has entered into employment agreements with
certain key employees that include noncompete provisions in exchange for
specified terms of employment.
11. BENEFIT PLANS
All number of shares and exercise prices are presented on a pre-split basis.
(see note 13 of Notes to Consolidated Financial Statements).
Employee Stock Purchase Plan - During fiscal 1997, the Company adopted the
Global Employee Stock Purchase Plan (GESPP) under which the Company is
authorized to issue up to one million shares of common stock to eligible
employees. Each offering period is limited to six months and a maximum number
of 125,000 common shares. The Company's first offering period began January 1,
1997 and ends June 30, 1997. Under the terms of the plan, employees elect to
have up to ten percent of their annual earnings withheld to purchase Company
stock, with a value not to exceed $25,000, at the close of the offering period.
The purchase price is 85 percent of the first or last day's closing market price
for each offering period, whichever is lower.
1996 Employee Stock Option Plan - In August 1995, the Company adopted the 1996
Employee Stock Option Plan. The plan provides for grants of options to purchase
up to 3,575,000 shares of the Company's common stock to employees of the
Company, of which 3,098,631 were outstanding at March 31, 1997. Under the
terms of the plan, the Company may grant nonqualified options at the fair market
value of the stock on the date of grant. During fiscal 1997, the Company granted
1,804,578 options under the 1996 Employee Stock Option Plan.
1993 Employee Stock Option Plan - In November 1992, the Company adopted the 1993
Employee Stock Option Plan. The plan provides for grants of options to purchase
up to 2,700,000 shares of the Company's common stock to officers and key
employees of the Company, of which 1,426,966 non qualified options were
outstanding at March 31, 1997. Under the terms of the plan, the Company may
grant incentive stock options at the fair market value of the stock on the date
of grant or nonqualified stock options at a price not less than
33
<PAGE> 34
50% of fair market value or $1.00 per share. The plan also provides for stock
appreciation rights which may be granted independently, or in conjunction with
any stock option granted under the plan. Stock options and appreciation rights
expire ten years from the date of grant. In addition, the Company may award
shares of restricted stock to participants subject to the terms and conditions
specified at the time of the award. During fiscal 1997, the Company granted
347,374 options under the 1993 Employee Stock Option Plan.
1992 Employee Stock Option Plan - The 1992 Employee Stock Option Plan provides
for grants of options to purchase shares of common stock to officers and key
employees of the Company. Under this plan, up to 2,100,000 shares of common
stock may be granted to officers and key employees. The provisions of the plan
are identical to the Company's 1993 Employee Stock Option Plan. There were
1,238,170 non-qualified options outstanding at March 31, 1997 under the 1992
Employee Stock Option Plan.
Non-Employee Director Stock Option Plan - In July 1992, the Company adopted the
Stock Option Plan for Non-Employee Directors. Under this plan, 300,000 shares
of common stock are reserved for issuance to non-employee directors of the
Company who have not been employees of the Company, any subsidiary of the
Company or any entity which controls more than 10% of the total combined voting
power of the Company's capital stock for at least one year prior to becoming
director. In June 1995, the Compensation Committee amended the provisions of
this plan to provide for the one-time grant of 20,000 option shares to each new
non-employee director in addition to an annual grant of 5,000 option shares to
each non-employee director. During fiscal 1997, 60,000 options were granted
under the Non-Employee Director Stock Option Plan of which 150,000 options were
outstanding at March 31, 1997.
Options generally vest in cumulative annual installments over a three to five
year period. All options expire ten years from the date of grant.
At March 31, 1997, a total of 415,641 options were outstanding under plans that
were terminated by the Company, of which 364,344 are fully vested. All
outstanding options under the terminated plans remain in effect in accordance
with the terms under which they were granted.
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
fixed stock option plans since the options have exercise prices of not less than
the market value of Compuware common stock at the date of grant.
If compensation cost for stock option grants had been determined based on the
fair value at the grant dates for fiscal 1997, 1996 and 1995 consistent with the
method prescribed by SFAS No. 123, Compuware's net earnings and earnings per
share would have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Net Earnings
As reported $97,436 $44,242 $62,097
Pro forma 85,319 37,565 59,571
Earnings per Share, on a post-split basis
As reported 1.08 0.49 0.65
Pro forma 0.95 0.42 0.63
</TABLE>
During the initial phase-in period, as required by SFAS No. 123, the pro forma
amounts were determined based on stock option grants during 1997, 1996 and 1995
only. The pro forma
34
<PAGE> 35
amounts for compensation cost may not be indicative of the effects on net
earnings and earnings per share for future years.
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 1997, 1996 and 1995, respectively:
expected volatility of 55.22, 64.73 and 50.34 percent; risk-free interest
rates of 6.6, 6.6 and 6.5 percent; and expected lives at date of grant of 4.3,
4.8 and 5.0. Dividend yields were not a factor as the Company has never issued
cash dividends and has no plans to do so in the future.
A summary of the status of fixed stock option grants under Compuware's
stock-based compensation plans as of March 31, 1997, 1996 and 1995, and changes
during the years ending on those dates is as follows (shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- -----------------------
Shares Shares Shares
Under Weighted-Avg. Under Weighted-Avg. Under Weighted-Avg.
Option Exercise Price Option Exercise Price Option Exercise Price
------ -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 5,052 $18.50 3,644 $15.73 4,997 $11.79
Granted 2,212 55.17 2,007 22.95 242 39.34
Exercised (628) 21.98 (295) 9.69 (1,391) 6.68
Forfeited (307) 21.89 (304) 23.36 (204) 8.88
------- ------- -------
Outstanding at end
of year 6,329 $30.60 5,052 $18.50 3,644 $15.73
======= ======= =======
Options exercisable
at year end 2,661 $16.10 2,556 $14.34 2,133 $13.35
======= ======= =======
Weighted-average
fair value of options
granted during the
year $29.42 $13.87 $23.46
======= ======= =======
</TABLE>
The following table summarizes information about fixed stock options
outstanding at March 31, 1997 (shares in thousands):
<TABLE>
Options Outstanding Options Exercisable
--------------------------------------- ------------------------
Shares Shares
Under Weighted-Avg. Weighted-Avg. Under Weighted-Avg.
Option Remaining Life Exercise Price Option Exercise Price
------- -------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
Range of Exercise Prices
$0.37 to $10.00 948 4.59 $7.11 902 $ 7.29
10.01 to 20.00 1,332 5.43 16.38 1,326 16.38
20.01 to 30.00 1,874 8.41 22.51 146 22.64
30.01 to 40.00 287 7.72 36.14 156 35.76
40.01 to 50.00 284 7.93 43.05 131 43.35
50.01 to 66.25 1,604 9.90 62.54 - -
----- -----
6,329 7.54 $30.60 2,661 $ 16.10
===== =====
</TABLE>
The maximum number of shares for which additional options may be granted
was 680,092 at March 31, 1997, 2,586,906 at March 31,1996 and 1,559,110 at March
31, 1995. At March 31, 1997, a total of 7,009,500 shares of the Company's
common stock are reserved for issuance under all option plans. Income tax
benefits associated with the exercise of stock options are reflected as
adjustments to additional paid-in capital.
Employee Stock Ownership Plan - In July 1986, the Company established an
Employee Stock Ownership Plan (ESOP) and Trust. Under the terms of the ESOP,
the Company makes annual contributions to the Plan for the benefit of
substantially all employees of the Company. The contribution may be in the form
of cash or common shares of the Company. The Board of
35
<PAGE> 36
Directors may authorize contributions between a maximum of 25% of
eligible compensation and a minimum sufficient to cover current obligations of
the Plan. The Company made contributions of $2,330,000, $1,508,000 and
$1,155,000 in fiscal 1997, 1996 and 1995, respectively. The provisions of SFAS
No. 123 do not apply to the Employee Stock Ownership Plan.
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended March 31, 1997 and
1996 are as follows (in thousands, except for per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
Fiscal 1997: ------ ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Revenues $162,338 $184,266 $213,713 $252,579 $812,896
Operating income 3,651 25,646 47,020 67,359 143,676
Pre-tax income 4,883 26,694 48,345 69,464 149,386
Net income (1) 3,257 16,100 32,246 45,833 97,436
Earnings per share (post-split) (1) 0.04 0.18 0.36 0.50 1.08
Earnings per share (pre-split) (1) 0.07 0.36 0.72 1.01 2.17
Fiscal 1996:
Revenues $126,174 $139,954 $161,298 $186,933 $614,359
Operating income 9,477 18,795 7,302 36,194 71,768
Pre-tax income 11,800 20,610 8,902 37,471 78,783
Net income (loss) (2) 7,788 13,828 (2,367) 24,993 44,242
Earnings (loss) per share
(post-split) (2) 0.08 0.15 (0.03) 0.29 0.49
Earnings (loss) per share
(pre-split) (2) 0.17 0.31 (0.06) 0.58 0.99
</TABLE>
(1) In fiscal 1997, the Company incurred special pre-tax charges
totaling $16,670,000 and $5,120,000 in the first and second quarters,
respectively. The charges include $16,670,000 and $5,120,000 for
purchased research and development expensed in connection with the
Direct Technology and DRD Promark acquisitions, respectively (Note 2).
Excluding these charges, in fiscal 1997 net income was $14,376,000
and $21,220,000 and earnings per share was $0.16 and $0.24 on a
post-split basis, or $0.33 and $0.48 on a pre-split basis, for the
first and second quarters, respectively. For the year ended March 31,
1997, net income and earnings per share, excluding special charges,
was $113,675,000 and $1.26 per share on a post-split basis, or $2.53
on a pre-split basis.
(2) In fiscal 1996, the Company incurred special pre-tax charges
totaling $24,943,000 and $10,688,000 in the third and fourth quarters,
respectively. The charges include $24,943,000 for purchased research
and development expensed in connection with the CoroNet Systems, Inc.
acquisition (Note 2) and $10,688,000 for restructuring costs incurred
in connection with the reorganization of the Company's operating units
and corporate functions. Excluding these charges, in fiscal 1996 net
income was $22,576,000 and $32,122,000 and earnings per share was
$0.26 and $0.37 on a post-split basis, or $0.52 and $0.74 on a
pre-split basis, for the third and fourth quarters, respectively. For
the year ended March 31, 1996, net income and earnings per share,
excluding special charges, was $76,314,000 and $0.85 per share on a
post-split basis, or $1.70 per share on a pre-split basis.
36
<PAGE> 37
13. SUBSEQUENT EVENTS (UNAUDITED)
Business Combinations - In April 1997, the Company acquired all of the
outstanding stock of Vine Systems Company Ltd., a professional services
company, for approximately 3,100,000 pounds sterling (approximately
$5,022,000 U.S. dollars). The acquisition will be accounted for by the
purchase method of accounting.
Common Stock and Additional Paid-in Capital - On April 3, 1997 the
Company's shareholders approved an increase in the Company's authorized
shares of common stock from 80,000,000 to 200,000,000 shares to permit a
two-for-one stock split which was previously approved by the Board of
Directors. The stock split was effected by means of a 100% stock dividend,
as of April 14, 1997 to holders of record as of April 4, 1997. In the
period of delivery, the balance sheet will be adjusted for a stock split by
increasing common stock par value and reducing capital surplus. In
accordance with Accounting Principles Board Opinion No. 15, "Earnings Per
Share", certain per share amounts have been adjusted to reflect the stock
split.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
37
<PAGE> 38
PART III
Certain information required by Part III is omitted from this report in that
the registrant will file a definitive proxy statement pursuant to Regulation
14A (the "Proxy Statement") not later than 120 days after the end of the fiscal
year covered by this Report, and certain information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement.
Executive Officers of the Registrant
The executive officers of the Company, who are elected by and serve at the
discretion of the Company's Board of Directors, are as follows as of June 3,
1997:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Peter Karmanos, Jr. 54 Chairman of the Board and Chief Executive Officer
Joseph A. Nathan 44 President and Chief Operating Officer
John N. Shevillo 61 Senior Vice President, Enterprise Solutions
Ralph A. Caponigro 65 Senior Vice President, Chief Financial Officer
(Chief Accounting Officer) and Treasurer
Stephen H. Fagan 42 Senior Vice President, Professional Services
Henry A. Jallos 48 Senior Vice President
Denise A. Knobblock 41 Senior Vice President
Shiela McKinnon 50 Senior Vice President
W. James Prowse 54 Senior Vice President
Eliot R. Stark 44 Senior Vice President
Thomas Costello, Jr. 43 Vice President, General Counsel and Secretary
</TABLE>
Peter Karmanos, Jr., is a founder of the Company and has served as Chairman of
the Board since November 1978, as Chief Executive Officer since July 1987 and
as President from January 1992 through October 1994.
Joseph A. Nathan has served as President/Chief Operating Officer since October
1994. From December 1990 through October 1994, Mr. Nathan was Senior Vice
President and Chief Operating Officer - Products Division.
38
<PAGE> 39
John N. Shevillo has served as Senior Vice President, Enterprise Solutions
since April 1997. From December 1991 through March 1997, Mr. Shevillo was
Senior Vice President, Professional Services.
Ralph A. Caponigro has served as Treasurer since May 1995 and as Senior Vice
President and Chief Financial Officer of Compuware since July 1990.
Stephen H. Fagan has served as Senior Vice President, Professional Services
since April 1997. From November 1994 through March 1997, Mr. Fagan was Senior
Vice President, Enterprise Systems. From 1987 through November 1994, Mr.
Fagan was Vice President, European Operations.
Henry A. Jallos has served as Senior Vice President, Worldwide Sales since
November 1994 and as Vice President, North American Sales from March 1988
through November 1994.
Denise A. Knobblock has served as Senior Vice President Administration since
January 1995. From January 1992 through December 1994, Ms Knobblock was
Director of Facilities/Administration.
Shiela McKinnon has served as Senior Vice President, Human Resources since
August 1996. From January 1995 through August 1996, Ms. McKinnon served as
Vice President, Human Resources. From May 1993 through January 1995, Ms.
McKinnon was Director of Human Resources and Manager of Human Resources from
March 1992 through May 1993.
W. James Prowse has served as Senior Vice President of Compuware since
January 1992.
Eliot R. Stark has served as Senior Vice President of Compuware since June
1995. From 1976 through May 1995, Mr. Stark was employed by Comerica
Incorporated serving as Senior Vice President - Corporate Development and
Planning, Director of Information Technology Services and Director of Real
Estate Development and Management from 1988 through 1995.
Thomas Costello, Jr. has served as General Counsel of Compuware since January
1985. He has served as Vice President since January 1995 and Secretary since
May 1995.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
39
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT.
1. CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of the Company
and its subsidiaries are filed herewith:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 20
Consolidated Balance Sheets as of March 31, 1997 and 1996 21
Consolidated Statements of Income for each of the years
ended March 31, 1997, 1996 and 1995 22
Consolidated Statements of Shareholders' Equity for each of
the years ended March 31, 1997, 1996 and 1995 23
Consolidated Statements of Cash Flows for each of the years
ended March 31, 1997, 1996 and 1995 24
Notes to Consolidated Financial Statements 25-37
</TABLE>
2. FINANCIAL STATEMENT SCHEDULE INCLUDED IN PART IV OF THIS FORM:
<TABLE>
<S> <C>
Independent Auditors' Report 44
Schedule II - Valuation and Qualifying Accounts 45
</TABLE>
All other financial statement schedules not listed above are
omitted as the required information is not applicable or the
information is presented in the consolidated financial statements or
related notes.
40
<PAGE> 41
3. EXHIBITS
The following exhibits are filed herewith or incorporated by reference:
Exhibit
Number Description of Document
- ------- -----------------------
2.1 Stock Exchange Agreement, dated as of March 16, 1994, by
and among Compuware Corporation, Uniface Holding B.V., the
Sellers therein and the Sellers' Agent. (3)
3.1 Restated Articles of Incorporation of Compuware
Corporation, as amended. (1)
3.2 Certificate of Amendment to the Articles of Incorporation
dated April 28, 1994. (3)
3.3 Certificate of Correction to the Articles of Incorporation dated
May 9, 1994. (3)
3.4 Certificate of Restated Bylaws of Compuware Corporation, as
amended. (1)
3.5 Certificate of Amendment to the Articles of Incorporation dated
April 3, 1997.
10.4 1992 Stock Option Plan. (1)
10.22 Promotion Agreement, dated March 1, 1990, and Amendment dated
December 26, 1990, between Computer Hockey Corporation and the
Company. (1)
10.23 Agreement, dated October 28, 1982, between Compuware Hockey
Club, L.P. and the Company, as amended. (1)
10.24 Promotion Agreement, dated September 8, 1992, between
Compuware Sports Corporation and the Company. (1)
10.31 Compuware Corporation Shareholder Agreement, dated November
5, 1992, among the Company and certain of its shareholders. (2)
10.32 Letter Agreement, dated October 22, 1992, among the Company,
General Atlantic Partners II, L.P. and GAP-Compuware Partners, L.P. (2)
10.35 Fiscal 1993 Stock Option Plan. (1)
10.36 Stock Option Plan for Non-Employee Directors. (1)
10.50 Registration Rights Agreement dated as of March 16, 1994 by
and among the Company, Uniface Holding B.V., the Sellers listed
therein and the Sellers' Agent. (3)
10.53 Agreement of Sale and Purchase, dated July 28, 1994, between
Etkin CW Associates Limited Partnership and the Company. (4)
10.57 Agreement for Purchase of Software, dated as of June 10,
1994, between Clavius Overseas Limited (APT) and the Company. (4)
10.58 Stockholders' Agreement, dated August 1, 1990, by and among
the Company and the Stockholders therein. (4)
10.59 Employment Agreement, dated as of April 1, 1995, between the
Company and Peter Karmanos, Jr. (5)
10.60 Employment Agreement, dated as of April 1, 1995, between the
Company and Joseph Nathan. (5)
10.61 Employment Agreement, dated as of April 1, 1995, between the
Company and John Shevillo. (5)
10.62 Employment Agreement, dated as of April 1, 1995, between the
Company and Ralph Caponigro. (5)
10.64 Employment Agreement, dated as of April 1, 1995, between the
Company and Stephen Fagan. (5)
10.65 Employment Agreement, dated as of April 1, 1995, between the
Company and Henry Jallos. (5)
10.66 Employment Agreement, dated as of April 1, 1995, between the
Company and Denise Knobblock. (5)
41
<PAGE> 42
10.67 Employment Agreement, dated as of April 1, 1995, between the
Company and W. James Prowse. (5)
10.68 Amended and Restated Revolving Loan Agreement. (5)
10.69 Agreement and Plan of Reorganization dated as of October 17,
1995 between CoroNet Systems, Inc. and the Company. (6)
10.70 Escrow Agreement made as of October 17, 1995 between CoroNet
Systems, Inc., the Company and the Escrow Agent. (6)
10.71 Agreement and Plan of Merger, dated as of January 10, 1996,
between the Company and Technalysis Corporation. (7)
10.72 Agreement and Plan of Merger, dated as of May 31, 1996,
between Adams & Reynolds & Company and the Company. (8)
10.73 Agreement for the Sale and Purchase of the Issued Share
Capital of Direct Technology Limited dated May 1996. (8)
10.74 Amendment to Employment Agreement, dated as of April 1, 1996,
between the Company and Peter Karmanos, Jr.
10.75 Amendment to Employment Agreement, dated as of April 1, 1996,
between the Company and Joseph A. Nathan.
10.76 Amendment to Employment Agreement, dated as of April 1, 1996,
between the Company and John N. Shevillo.
10.77 Amendment to Employment Agreement, dated as of April 1, 1996,
between the Company and W. James Prowse.
10.78 Amendment to Employment Agreement, dated as of April 1, 1996,
between the Company and Henry A. Jallos.
10.79 Amendment to Employment Agreement, dated as of April 1, 1996,
between the Company and Stephen H. Fagan.
11.1 Computation of Compuware Corporation and Subsidiaries net
income per common share.
21.1 Subsidiaries of the Registrant. (4)
23.1 Independent Auditors' Consent
27.0 Financial Data Schedule
---------------
(1) Incorporated by reference to the
corresponding exhibit to the Registration Statement on
Form S-1, as amended (Registration No. 33-53652).
(2) Incorporated by reference to the
corresponding exhibit to the Registration Statement on
Form S-1, as amended (Registration No. 33-63400).
(3) Incorporated by reference to the
corresponding exhibit to the Registration Statement on
Form S-4, as amended (Registration No. 33-78822).
(4) Incorporated by reference to the
corresponding exhibit to the Registration Statement on
Form S-3, as amended (Registration No. 33-82734).
(5) Incorporated by reference to the
corresponding exhibit to the 1995 Annual Report on Form
10-K.
(6) Incorporated by reference to the
corresponding exhibit to the Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1995.
(7) Incorporated by reference to the
corresponding exhibit to the Quarterly Report on Form
10-Q for the quarterly period ended December 31, 1995.
(8) Incorporated by reference to the
corresponding exhibit to the 1996 Annual Report on Form
10-K.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter
ended March 31, 1997.
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Farmington Hills, State of Michigan on June 16, 1997.
COMPUWARE CORPORATION
By: /S/ PETER KARMANOS, JR.
---------------------------------------
Peter Karmanos, Jr.
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ ----------------------------------------------- -------------
<S> <C> <C>
/S/ PETER KARMANOS, JR. Chairman of the Board, Chief Executive Officer June 16, 1997
- --------------------------- and Director (Principal Executive Officer)
Peter Karmanos, Jr.
/S/ THOMAS THEWES Vice Chairman of the Board and Director June 16, 1997
- ---------------------------
Thomas Thewes
/S/ JOSEPH A. NATHAN President, Chief Operating Officer and Director June 16, 1997
- ---------------------------
Joseph A. Nathan
/S/ RALPH A. CAPONIGRO Senior Vice President, Chief Financial Officer June 16, 1997
- --------------------------- (Chief Accounting Officer) and Treasurer
Ralph A. Caponigro
/S/ W. JAMES PROWSE Senior Vice President and Director June 16, 1997
- ---------------------------
W. James Prowse
Director
- ---------------------------
Bernard Goldsmith
Director
- ---------------------------
William O. Grabe
Director
- ---------------------------
William Halling
/S/ G. SCOTT ROMNEY Director June 16, 1997
- ---------------------------
G. Scott Romney
Director
- ---------------------------
Lowell Weicker, Jr.
</TABLE>
43
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF COMPUWARE CORPORATION:
We have audited the consolidated financial statements of Compuware Corporation
and subsidiaries as of March 31, 1997 and 1996 and for each of the three years
in the period ended March 31, 1997, and have issued our report thereon dated
May 5, 1997; such report is included elsewhere in this Annual Report on Form
10-K. Our audits also included the financial statement schedule of Compuware
Corporation and subsidiaries, listed in Item 14 (a) 2. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
May 5, 1997
44
<PAGE> 45
COMPUWARE CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ----------------------------- -------- --------
ADDITIONS
-----------------------------
CHARGED
BALANCE AT CHARGED TO OTHER (1) BALANCE AT
BEGINNING TO COSTS ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1997 $5,244 $5,106 $3,409 $6,941
Year ended March 31, 1996 1,605 7,355 3,716 5,244
Year ended March 31, 1995 1,390 805 590 1,605
</TABLE>
- ---------------
(1) Write-off of uncollectible accounts, product maintenance cancellations
and service cost overruns.
45
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
2.1 Stock Exchange Agreement, dated of March 16, 1994, by and among
Compuware Corporation, Uniface Holding B.V., the Sellers therein and the
Sellers' Agent. (3)
3.1 Restated Articles of Incorporation of Compuware Corporation, as amended. (1)
3.2 Certificate of Amendment to the Articles of Incorporation dated April 28, 1994.
(3)
3.3 Certificate of Correction to the Articles of Incorporation dated May 9, 1994. (3)
3.4 Certificate of Restated Bylaws of Compuware Corporation, as amended. (1)
3.5 Certificate of Amendment to the Articles of Incorporation dated April 3, 1997.
10.4 1992 Stock Option Plan. (1)
10.22 Promotion Agreement, dated March 1, 1990, and Amendment dated December
26, 1990, between Computer Hockey Corporation and the Company. (1)
10.23 Agreement, dated October 28, 1982, between Compuware Hockey Club, L.P.
and the Company, as amended. (1)
10.24 Promotion Agreement, dated September 8, 1992, between Compuware Sports
Corporation and the Company. (1)
10.31 Compuware Corporation Shareholder Agreement, dated November 5, 1992,
among the Company and certain of its shareholders. (2)
10.32 Letter Agreement, dated October 22, 1992, among the Company, General
Atlantic Partners II, L.P. and GAP-Compuware Partners, L.P. (2)
10.35 Fiscal 1993 Stock Option Plan. (1)
10.36 Stock Option Plan for Non-Employee Directors. (1)
10.50 Registration Rights Agreement dated as of March 16, 1994 by and among the
Company, Uniface Holding B.V., the Sellers listed therein and the Seller's
Agent. (3)
10.53 Agreement of Sale and Purchase, dated July 28, 1994, between Etkin CW
Associates Limited Partnership and the Company. (4)
10.57 Agreement for Purchase of Software, dated as of June 10, 1994, between
Clavius Overseas Limited (APT) and the Company. (4)
10.58 Stockholders' Agreement, dated August 1, 1990, by and among the Company
and the Stockholders therein. (4)
10.59 Employment Agreement, dated as of April 1, 1995, between the Company and
Peter Karmanos, Jr. (5)
10.60 Employment Agreement, dated as of April 1, 1995, between the Company and
Joseph Nathan. (5)
10.61 Employment Agreement, dated as of April 1, 1995, between the Company and
John Shevillo. (5)
10.62 Employment Agreement, dated as of April 1, 1995, between the Company and
Ralph Caponigro. (5)
10.64 Employment Agreement, dated as of April 1, 1995, between the Company and
Stephen Fagan. (5)
10.65 Employment Agreement, dated as of April 1, 1995, between the Company and
Henry Jallos. (5)
10.66 Employment Agreement, dated as of April 1, 1995, between the Company and
Denise Knobblock. (5)
10.67 Employment Agreement, dated as of April 1, 1995, between the Company and
W. James Prowse. (5)
10.68 Amended and Restated Revolving Loan Agreement. (5)
10.69 Agreement and Plan of Reorganization dated as of October 17, 1995 between
CoroNet Systems, Inc. and the Company. (6)
10.70 Escrow Agreement made as of October 17, 1995 between CoroNet Systems,
Inc., the Company and the Escrow Agent. (6)
10.71 Agreement and Plan of Merger, dated as of January 10, 1996, between the
Company and Technalysis Corporation. (7)
10.72 Agreement and Plan of Merger, dated as of May 31, 1996, between Adams &
Reynolds & Company and the Company. (8)
10.73 Agreement for the Sale and Purchase of the Issued Share Capital of Direct
Technology Limited dated May 1996. (8)
10.74 Amendment to Employment Agreement, dated as of April 1, 1995, between
the Company and Peter Karmanos, Jr.
10.75 Amendment to Employment Agreement, dated as of April 1, 1995, between
the Company and Joseph A. Nathan.
10.76 Amendment to Employment Agreement, dated as of April 1, 1995, between
the Company and John N. Shevillo.
10.77 Amendment to Employment Agreement, dated as of April 1, 1995, between
the Company and W. James Prowse.
10.78 Amendment to Employment Agreement, dated as of April 1, 1995, between
the Company and Henry A. Jallos.
10.79 Amendment to Employment Agreement, dated as of April 1, 1995, between
the Company and Stephen H. Fagan.
11.1 Computation of Compuware Corporation and Subsidiaries net income per
common share.
21.1 Subsidiaries of the Registrant. (4)
23.1 Independent Auditors' Consent
27.0 Financial Data Schedule
------------------------
(1) Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1, as amended (Registration
No. 33-53652).
(2) Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1, as amended (Registration
No. 33-63400).
(3) Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-4, as amended (Registration
No. 33-78822).
(4) Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-3, as amended (Registration
No. 33-82734).
(5) Incorporated by reference to the corresponding exhibit to the
1995 Annual Report on Form 10-K.
(6) Incorporated by reference to the corresponding exhibit to the
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995.
(7) Incorporated by reference to the corresponding exhibit to the
Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1995.
(8) Incorporated by reference to the corresponding exhibit to the 1996
Annual Report on Form 10-K.
</TABLE>
<PAGE> 1
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES AND LAND DEVELOPMENT BUREAU EXHIBIT 3.5
(FOR BUREAU USE ONLY)
FILED
Date Received
APR 03 1997
April 03, 1997
ADMINISTRATOR
MI DEPARTMENT OF CONSUMER & INDUSTRY
Name JANIS K. KUJAN, LEGAL ASSISTANT SERVICES CORPORATION, SECURITIES &
Honigman Miller Schwartz and Cohn LAND DEVELOPMENT BUREAU
EFFECTIVE DATE
- -------------------------------------------------
Address
2290 First National Building 660 Woodward Avenue
- -------------------------------------------------
City State Zip Code
Detroit Michigan 48226-3583
- ------------------------------------------
DOCUMENT WILL BE RETURNED TO THE NAME AND ADDRESS YOU ENTER ABOVE
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT AND NONPROFIT CORPORATIONS
(Please read information and instructions on the last page)
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit
corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the
undersigned corporation executes the following Certificate:
1. The present name of the corporation is:
COMPUWARE CORPORATION
2. The identification number assigned by the Bureau is: 008-375
-------
3. The location of the registered office is:
31440 Northwestern Highway Farmington Hills, Michigan 48334-2564
- --------------------------- ----------------- ----------
(Street Address) (City) (ZIP Code)
4. Article III of the Articles of Incorporation is hereby amended to read
as follows:
The total authorized capital stock is:
1. Common Shares 200,000,000 $.01 Par Value.
Preferred Shares 5,000,000 Class A, No Par Value.
[The remaining paragraphs of Articles III are unchanged.]
<PAGE> 2
5. (FOR AMENDMENTS ADOPTED BY UNANIMOUS CONSENT OF INCORPORATORS BEFORE THE
FIRST MEETING OF THE BOARD OF DIRECTORS OF TRUSTEES.)
The foregoing amendment of the Articles of Incorporation was duly
adopted on the __________________ day of
____________________________________, in accordance with the provisions
of the Act by the unanimous consent of the incorporator(s) before the
first meeting of the Board of Directors of Trustees.
Signed this _________________ day of ____________________________
________________________________ _____________________________
(Signature) (Signature)
________________________________ _____________________________
(Type or Print Name) (Type or Print Name)
________________________________ _____________________________
(Signature) (Signature)
________________________________ _____________________________
(Type or Print Name) (Type or Print Name)
6. (FOR PROFIT CORPORATIONS, AND FOR NONPROFIT CORPORATIONS WHOSE
ARTICLES STATE THE CORPORATION IS ORGANIZED ON A STOCK OR ON A
MEMBERSHIP BASIS.)
The foregoing amendment to the Articles of Incorporation was duly
adopted on the 3rd day of April, 1997 by the shareholders if a profit
corporation, or by the shareholders or members if a nonprofit
corporation (check one of the following)
[X] at a meeting. The necessary votes were cast in favor
of the amendment.
[ ] by written consent of the shareholders or members having not
less than the minimum number of votes required by statute in
accordance with Section 407(1) and (2) of the Act if a nonprofit
corporation, or Section 407(1) of the Act if a profit
corporation. Written notice to shareholders or members who have
not consented in writing has been given. (Note: Written
consent by less than all of the shareholders or members is
permitted only if such provision appears in the Articles of
Incorporation.
[ ] by written consent of the shareholders or members entitled to
vote in accordance with section 407(3) of the Act if a
nonprofit corporation, or Section 407(2) of the Act if a profit
corporation.
Signed this 2nd day of April, 1997
By Thomas Costello, Jr.
---------------------------------------------------
Thomas Costello, Jr. Vice President/Secretary
------------------------------------------------------
(Type or Print Name) (Type or Print Title)
<PAGE> 1
EXHIBIT 10.74
EXHIBIT A
TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 1, 1995
Executive: Peter Karmanos, Jr.
Annual Salary: $500,000
Vacation: Standard
Termination Date: March 31, 2000. This Exhibit A amends Section 2 of the
Agreement so that the Agreement terminates on March 31,
2000. The Agreement will not be automatically extended
beyond March 31, 2000.
Salary Continuation:
(a) After Termination for Convenience pursuant to Section 4.3:
Payment of Salary until March 31, 2000.
(b) After Expiration of Employment Term: Salary as of March 31, 2000
to be paid over one (1) year in twelve monthly installments.
Other Additional Compensation:
(a) All stock options granted Executive during his or her employment
shall continue to vest until the expiration of the Employment
Term.
COMPUWARE CORPORATION
By: Thomas Costello, Jr.
-----------------------------------
Its: V.P. - Secretary
-----------------------------------
Peter Karmanos, Jr.
----------------------------------------
Peter Karmanos, Jr., Executive
This Exhibit A is effective April 1, 1996. It may be amended from time to time
by an Exhibit A in similar form bearing a later effective date and the
signatures of Company and Executive.
<PAGE> 1
EXHIBIT 10.75
EXHIBIT A
TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 1, 1995
Executive: Joseph A. Nathan
Annual Salary: $400,000
Vacation: Standard
Termination Date: March 31, 2000. This Exhibit A amends Section 2 of the
Agreement so that the Agreement terminates on March 31,
2000. The Agreement will not be automatically extended
beyond March 31, 2000.
Salary Continuation:
(a) After Termination for Convenience pursuant to Section 4.3:
Payment of Salary until March 31, 2000.
(b) After Expiration of Employment Term: Salary as of March 31, 2000
to be paid over one (1) year in twelve monthly installments.
Other Additional Compensation:
(a) All stock options granted Executive during his or her employment
shall continue to vest until the expiration of the Employment
Term.
COMPUWARE CORPORATION
By: Peter Karmanos, Jr.
-----------------------------------
Its: Chairman and CEO
-----------------------------------
Joseph A. Nathan
----------------------------------------
Joseph A. Nathan, Executive
This Exhibit A is effective April 1, 1996. It may be amended from time to time
by an Exhibit A in similar form bearing a later effective date and the
signatures of Company and Executive.
<PAGE> 1
EXHIBIT 10.76
EXHIBIT A
TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 1, 1995
Executive: John N. Shevillo
Annual Salary: $300,000
Vacation: Standard
Termination Date: March 31, 1998. This Exhibit A amends Section 2 of the
Agreement so that the Agreement terminates on March 31,
1998. The Agreement will not be automatically extended
beyond March 31, 1998.
Salary Continuation:
(a) After Termination for Convenience pursuant to Section 4.3:
Payment of Salary until March 31, 1998.
(b) After Expiration of Employment Term: Salary as of March 31, 1998
to be paid over one (1) Year in twelve monthly installments.
Other Additional Compensation:
(a) All stock options granted Executive during his or her employment
shall continue to vest until the expiration of the Employment
Term.
COMPUWARE CORPORATION
By: Peter Karmanos, Jr.
-----------------------------------
Its: Chairman and CEO
-----------------------------------
John N. Shevillo
----------------------------------------
John N. Shevillo, Executive
This Exhibit A is effective April 1, 1996. It may be amended from time to time
by an Exhibit A in similar form bearing a later effective date and the
signatures of Company and Executive.
<PAGE> 1
EXHIBIT 10.77
EXHIBIT A
TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 1, 1995
Executive: W. James Prowse
Annual Salary: $320,000
Vacation: Standard
Termination Date: March 31, 2000. This Exhibit A amends Section 2 of the
Agreement so that the Agreement terminates on March 31,
2000. The Agreement will not be automatically extended
beyond March 31, 2000.
Salary Continuation:
(a) After Termination for Convenience pursuant to Section 4.3:
Payment of Salary until March 31, 2000.
(b) After Expiration of Employment Term: Salary as of March 31, 2000
to be paid over one (1) year in twelve monthly installments.
Other Additional Compensation:
(a) All stock options granted Executive during his or her employment
shall continue to vest until the expiration of the Employment
Term.
COMPUWARE CORPORATION
By: Peter Karmanos, Jr.
-----------------------------------
Its: Chairman and CEO
-----------------------------------
W. James Prowse
----------------------------------------
W. James Prowse, Executive
This Exhibit A is effective April 1, 1996. It may be amended from time to time
by an Exhibit A in similar form bearing a later effective date and the
signatures of Company and Executive.
<PAGE> 1
EXHIBIT 10.78
EXHIBIT A
TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 1, 1995
Executive: Henry A. Jallos
Annual Salary: $300,000
Vacation: Standard
Termination Date: March 31, 1998. This Exhibit A amends Section 2 of the
Agreement so that the Agreement terminates on March 31,
1998. The Agreement will not be automatically extended
beyond March 31, 1998.
Salary Continuation:
(a) After Termination for Convenience pursuant to Section 4.3:
Payment of Salary until March 31, 1998.
(b) After Expiration of Employment Term: Salary as of March 31, 1998
to be paid over one (1) year in twelve monthly installments.
Other Additional Compensation:
(a) All stock options granted Executive during his or her employment
shall continue to vest until the expiration of the Employment
Term.
COMPUWARE CORPORATION
By: Peter Karmanos, Jr.
-----------------------------------
Its: Chairman and CEO
-----------------------------------
Henry A. Jallos
----------------------------------------
Henry A. Jallos, Executive
This Exhibit A is effective April 1, 1996. It may be amended from time to time
by an Exhibit A in similar form bearing a later effective date and the
signatures of Company and Executive.
<PAGE> 1
EXHIBIT 10.79
EXHIBIT A
TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 1, 1995
Executive: Stephen H. Fagan
Annual Salary: $300,000
Vacation: Standard
Termination Date: March 31, 1998. This Exhibit A amends Section 2 of the
Agreement so that the Agreement terminates on March 31,
1998. The Agreement will not be automatically extended
beyond March 31, 1998.
Salary Continuation:
(a) After Termination for Convenience pursuant to Section 4.3:
Payment of Salary until March 31, 1998.
(b) After Expiration of Employment Term: Salary as of March 31, 1998
to be paid over one (1) year in twelve monthly installments.
Other Additional Compensation:
(a) All stock options granted Executive during his or her employment
shall continue to vest until the expiration of the Employment
Term.
COMPUWARE CORPORATION
By: Peter Karmanos, Jr.
-----------------------------------
Its: Chairman and CEO
-----------------------------------
Stephen H. Fagan
----------------------------------------
Stephen H. Fagan, Executive
This Exhibit A is effective April 1, 1996. It may be amended from time to time
by an Exhibit A in similar form bearing a later effective date and the
signatures of Company and Executive.
<PAGE> 1
EXHIBIT 11.1
COMPUWARE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income $97,436 $44,242 $62,097
======= ======= =======
Shares used in computing net income per share:
Weighted average common shares outstanding 85,192 86,880 89,514
Dilutive effect of stock options (1) 4,743 2,857 5,855
------- ------- -------
Total 89,935 89,737 95,369
======= ======= =======
Net income per common share, on a post-split basis $ 1.08 $ 0.49 $ 0.65
======= ======= =======
</TABLE>
- -------------------------
(1) The dilutive effect of stock options is determined using the treasury stock
method based upon the average price per share, on a post-split basis, of
$23.61, $11.88 and $20.00 for fiscal 1997, 1996 and 1995, respectively.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-17263, 33-57364, 333-4522 and 33-70852 and Post-Effective Amendment No. 1
to Registration Statement No. 33-78822 of Compuware Corporation on Forms S-8 of
our reports dated May 5, 1997, appearing in this Annual Report on Form 10-K of
Compuware Corporation for the year ended March 31, 1997.
DELOITTE & TOUCHE LLP
Detroit, Michigan
June 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 107,341
<SECURITIES> 0
<RECEIVABLES> 297,863
<ALLOWANCES> 6,941
<INVENTORY> 0
<CURRENT-ASSETS> 451,812
<PP&E> 109,502
<DEPRECIATION> 38,924
<TOTAL-ASSETS> 755,407
<CURRENT-LIABILITIES> 272,304
<BONDS> 6,068
0
0
<COMMON> 429
<OTHER-SE> 446,052
<TOTAL-LIABILITY-AND-EQUITY> 755,407
<SALES> 812,896
<TOTAL-REVENUES> 812,896
<CGS> 669,220
<TOTAL-COSTS> 669,220
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 612
<INCOME-PRETAX> 149,386
<INCOME-TAX> 51,950
<INCOME-CONTINUING> 143,676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,436
<EPS-PRIMARY> .108
<EPS-DILUTED> .108
</TABLE>
